World Bank Document

Document of The World Bank

FOR OFFICIAL USE ONLY

Public Disclosure Authorized Report No: 43319-BR

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LOAN

Public Disclosure Authorized IN THE AMOUNT OF US$130.00 MILLION

TO THE

FEDERAL DISTRICT

WITH THE GUARANTEE OF THE

FEDERATIVE REPUBLIC OF BRAZIL

FOR A Public Disclosure Authorized FEDERAL DISTRICT MULTISECTOR PUBLIC MANAGEMENT PROJECT

February 20, 2009

Brazil Country Management Unit Human Development Sector Management Unit Latin American and the Caribbean Regional Office

Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

CURRENCY EQUIVALENTS

(Exchange Rate Effective January 31, 2009)

Currency Unit = Real (R$) R$ 1.00 = US$0.432 US$1.00 = R$ 2.32

FISCAL YEAR January 1 – December 31

Vice President: Pamela Cox Country Director: Makhtar Diop Sector Manager: Keith Hansen Sector Leader: Michele Gragnolati Task Team Leader: Joana Godinho FOR OFFICIAL USE ONLY

ABBREVIATIONS AND ACRONYMS

AIDS Acquired Immune FHP Family Health Program Deficiency Syndrome FM Financial Management ALOS Average Length-of-Stay FMA Financial Management AMQ Quality Ranking System Assessment APL Adaptable Program Loan FRL Fiscal Responsibility Law ARI Acute Respiratory Infections (LFR) BP Bank Procedures GDF Government of the Federal BRT Bus Rapid Transit District CAF Corporacion Andina de GDP Gross Domestic Product Fomento GPRS Growth and Poverty CBA Cost-Benefit Analysis Reduction Strategy CCO Transport Control Center for GPS Global Positioning System Operations HC Health Card COFIEX External Financing HIV Human Immunodeficiency Committee of the Federal Virus Government HPV Human Papillomavirus COGERF Fiscal and Results Based IADB Inter-American Development Committee Bank COMPRASNET Brazilian Federal ICB International Competitive Procurement Web Portal Bidding CPS Country Partnership Strategy IDEB Basic Education CQS Consultant’s Qualification Development Index Selection IEG Independent Evaluation CSR Civil Service Reform Group CTPC Public Transport Council IFR Interim Financial Reports CVD Cardiovascular Diseases IMR Infant Mortality Rate DAAG Department for Monitoring INDG Management Development and Evaluation of Institute Government Programs INEP National Educational DAC Development Assistance Research Institute Committee IP Implementation Program DETRAN Federal District Department IPCA Broad Consumer Price Index of Traffic IRR Internal Rate of Return DF Federal District LCS Least Cost Selection DFTRANS Federal District Transport LDSO DFTRANS's data report Agency LFR Law of Fiscal Responsibility DLI Disbursement-linked M&E Monitoring and Evaluation Indicator MBC Competitive Brazil DO Development Objective Movement DSEI Special Indigenous Health METRO Subway System Operator District MICs Middle-Income Countries ECD Early Childhood MoH Ministry of Health Development MTR Mid-Term Review EDUQ Pernambuco Education NCB National Competitive Quality Improvement Project Bidding EEPs Eligible Expenditure NCD Non-Communicable Programs Diseases ENEM National High School NOVACAP DF Construction Company Examination NPV Net Present Value

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. NTU National Transport Union RHCN Regional Health Care OECD Organization for Economic Networks Cooperation and SAEB National Basic Education Development Evaluation System OED Operations Evaluation SAEP Education Evaluation Department System of the State of ONA National Organization of Pernambuco Accreditation (Acreditação) SAT Reasoning Test – former OP Operational Policies Scholastic Aptitude Test OS Social Organization SBD Sample Bidding Documents OSCIP Civil Society Organization of SEE Secretariat of Education Public Interest SEFAZ Secretariat of Finance PAD Project Appraisal Document SEPLAG Secretariat of Planning and PAF Annual Financing Plan Management PAR State Integrated Action Plan SESA Secretariat of Health and PDIs Project Development Health Care Indicators SET Secretariat of Transport PDOs Project Development SIGGO Public State Accounting Objectives System PDTU Master Plan for Urban SIL Specific Investment Loan Transportation SOE Statement of Expenditure PEFA Public Expenditure and SOI Ombudsman and Financial Accountability Information System PFM Public Financial SPD Standard Bidding Management Documents PHC Primary Health Care SPN Supervision PISA Program for International SPR Secretariat Performance Student Assessment Reports PMTUAS Program of Technology STN National Treasury Secretariat Modernization of Health SUS National Health Service Units SWAp Sector-Wide Approach PNAD National Household Survey TA Technical Assistance PNAGE National Program of Support TCDF District Court of Accounts for Modernization and UNB University of Brasília Management Planning UNICEF United Nations Children’s POM Project Operational Manual Fund PSF Family Health Program USAID United States Agency for PSM Public Service Management International Development QBS Quality-Based Selection VIGISUS Disease Surveillance and QCBS Quality-and Cost-Based Control Project Selection WHO World Health Organization QUALISUS Brazil Health Network WS&S Water Supply and Sanitation Formation and Quality Improvement Project RA Results Agreement RAG Red-Amber-Green (ratings) RBM Results-Based Management

BRAZIL FEDERAL DISTRICT MULTISECTOR PUBLIC MANAGEMENT PROJECT

CONTENTS

Page

I. STRATEGIC CONTEXT AND RATIONALE ...... 1 A. Country and sector issues...... 1 B. Rationale for Bank involvement ...... 7 C. Higher level objectives to which the project contributes...... 13

II. PROJECT DESCRIPTION...... 14 A. Lending instrument...... 14 B. Program objective and phases...... 14 C. Project development objective and key indicators...... 14 D. Project components...... 16 E. Lessons learned and reflected in the project design...... 21 F. Alternatives considered and reasons for rejection ...... 23

III. IMPLEMENTATION...... 23 A. Partnership arrangements (Annex 2) ...... 23 B. Institutional and implementation arrangements (Annex 6) ...... 25 C. Monitoring and evaluation of outcomes/results (Annex 1 and 3)...... 25 D. Sustainability...... 26 E. Critical risks and possible controversial aspects...... 27 F. Loan/credit conditions and covenants...... 29

IV. APPRAISAL SUMMARY...... 29 A. Economic and financial analyses (Annex 9)...... 29 B. Technical...... 29 C. Fiduciary (Annexes 7 and 8)...... 30 D. Social (Annexes 1 and 10) ...... 31 E. Environment...... 31 F. Policy Exceptions and Readiness. No policy exceptions are envisaged...... 32

ANNEXES

Annex 1: Country and Sector or Program Background...... 33

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies...... 47

Annex 3: Results Framework and Monitoring...... 60

Annex 4: Detailed Project Description ...... 69

Annex 5: Project Costs...... 77

Annex 6: Implementation Arrangements...... 81

Annex 7: Financial Management and Disbursement Arrangements ...... 85

Annex 8: Procurement Arrangements...... 100

Annex 9: Economic and Financial Analysis...... 107

Annex 10: Safeguard Policy Issues...... 114

Annex 11: Project Preparation and Supervision ...... 115

Annex 12: Documents in the Project File...... 116

Annex 13: Statement of Loans and Credits ...... 117

Annex 14: Country at a Glance...... 121

Annex 15: Map IBRD 36809 ...... 123

BRAZIL FEDERAL DISTRICT MULTISECTOR MANAGEMENT PROJECT

PROJECT APPRAISAL DOCUMENT

LATIN AMERICA AND CARIBBEAN

LCSHH

Date: February 20, 2009 Team Leader: Joana Godinho Country Director: Makhtar Diop Sectors: Health (28%); General education Sector Manager/Director: Keith E. Hansen sector (27%);General public administration sector (25%);General transportation sector (20%) Themes: Managing for development results (P) Project ID: P107843 Environmental screening category: Not Required Lending Instrument: Specific Investment Loan

Project Financing Data [X] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other:

For Loans/Credits/Others: Total Bank financing (US$m.): 130.00 Proposed terms: Fixed Spread Loan with repayments in 23 years including a three year grace period. Financing Plan (US$m) Source Local Foreign Total Borrower 270.00 0.00 270.00 International Bank for Reconstruction and 130.00 0.00 130.00 Development Total: 400.00 0.00 400.00 Borrower: Government of the Federal District, Brazil

Responsible Agency: Secretariat of Planning of Government of the Federal District, Brazil

Estimated disbursements (Bank FY/US$m) FY 2010 2011 2012 2013 Annual 43.83 34.84 34.83 16.5 Cumulative 43.83 78.67 113.50 130.00 Project implementation period: Start July 1, 2009 End: December 31, 2012 Expected effectiveness date: July 1, 2009 Expected closing date: December 31, 2012

Does the project depart from the CAS in content or other significant respects? [ ]Yes [X] No Ref. PAD I.C. Does the project require any exceptions from Bank policies? Have these been approved by Bank management? [ ]Yes [X] No Is approval for any policy exception sought from the Board? [ ]Yes [ ] No Ref. PAD IV.G. [ ]Yes [X] No Does the project include any critical risks rated “substantial” or “high”? [ ]Yes [X] No Ref. PAD III.E. Does the project meet the regional criteria for readiness for implementation? [X]Yes [ ] No Ref. PAD IV.G.

Project development objective Ref. PAD II.C., Technical Annex 3 The proposed project development objectives (PDOs) are the following: (i) improve public sector management and accountability by establishing results-based management practices and improving fiduciary oversight; and (ii) increase access, quality and efficiency of the education, health and public transport services by modernizing the education system; modernizing, decentralizing and integrating various levels of health care; and strengthening the institutional and operational capacity of the public transport sector. Project description Ref. PAD II.D., Technical Annex 4 Component 1. Strengthening Results-Based Management in the Public Sector (US$390 million). This component will contribute to the implementation of the proposed program by supporting critical public sector management reforms targeting the education, health and transport sectors.

Component 2. Building Capacity in the Public Sector (US$10 million1). This component will finance technical assistance and training to support the fulfillment of the project development objectives. Which safeguard policies are triggered, if any? None. Ref. PAD IV.F., Technical Annex 10

Significant, non-standard conditions, if any, for: Ref. PAD III.F. Board presentation: None. Loan/credit effectiveness: None. Covenants applicable to project implementation: None.

1 This includes the front-end-fee.

I. STRATEGIC CONTEXT AND RATIONALE

A. Country and sector issues

1. Over the last decade, Brazil has made great strides on nearly all measures of economic growth and social equity. The economy was growing steadily; inflation and debt were lower; employment was higher; poverty has been reduced and income inequality has been decreasing. However, the global financial crisis is having a negative impact on Brazil’s economic growth, which is expected to decelerate to 1.75% in 2009. While financial and external sector indicators stabilized in 2009, industrial production and employment decreased. To face the current economic scenario, the Government has strengthened its macroeconomic policies.

2. In this context, a reform movement has been sweeping Brazil’s subnational public sector, aimed at making government more responsive to demands for services and more accountable to citizens. The so-called “Choque de Gestão” (Management Shock) model, first launched by the Government of Minas Gerais, involves securing a healthy macroeconomic and fiscal situation, improving efficiency and service quality in key sectors that account for a significant part of state expenditures, and committing the state government to measurable results, among other managerial innovations. The leaders in this movement are the States of Minas Gerais, Ceará, and, most recently, Pernambuco and the Federal District (DF).

3. The DF’s Arruda Administration launched a significant public sector reform soon after taking office. Federal District Governor Jose Roberto Arruda was elected in October 2006 and soon after launched an ambitious reform program focused on the concept of Results-Based Management. The Government of the Federal District (GDF) comprehensive plan employs a wide range of new policies geared toward streamlining management processes and making them more efficient. The three pillars of this program are decentralization, modernization and integration of public services. The Arruda administration believes strongly in the merits of Results-Based Management, and believes that expanding the use of this approach will produce better public services and benefits for all DF residents, and will improve the DF’s competitiveness and growth potential.

4. The macroeconomic framework of the Federal District is solid. The GDF has taken important steps during the last five years to put its fiscal house in order, a trend which was consolidated under the new administration. Between 2002 and April 2007, the GDF reduced its indebtedness level from 40 percent to 20 percent of net current revenue, thereby increasing significantly the fiscal space to take on additional debt (the Law on Fiscal Responsibility ceiling for indebtedness is 200 percent of net current revenues). In spite of previous fiscal discipline, the new administration entered office in January 2007 confronting a debt of R$750 million, with only R$3 million in cash reserves. As a result of the reforms implemented by this government, the 2008 calendar year opened with R$1.2 billion in resources, which are being used to expand targeted investments. For 2008-2011, the GDF has a projected budget of R$ 31.7 billion (about US$19 billion).

5. However, the Federal District suffers from many of the same challenges observed in other major metropolitan areas. These include high population density in central urban areas but very low densities between such areas; unequal distribution of wealth between the central

city and outlying regions; unemployment; high rates of violent crime and traffic accidents; an overburdened public sector, including a health sector forced to work well beyond its resource capacity; a heavily-used but inefficient transport system that is experiencing degradation of services, and a sharp decline in public transport modal share due to rapid growth in car ownership. The DF has the highest Human Development Index of Brazil. However, the Gini income inequality index is higher than the national index, and has decreased at a slower rate (from 0.63 to 0.61 between 2003 and 2006, while the national index dropped from 0.56 to 0.52 in the same period).

6. The Federal District is the third largest urban area in Brazil after Sao Paulo and Rio de Janeiro. The establishment of Brasilia as the new capital of Brazil was one of the main targets of the Plano de Metas (Targets Plan) of Juscelino Kubitschek de Oliveira, the President of Brazil from 1956 to 1961. “The Capital of Hope”, as André Malraux called Brasilia, was an idea that took about two centuries and the combined efforts of exceptional reformers to materialize. On April 21, 1960, President Kubitschek inaugurated Brasilia in the Federal District. Lucio Costa and Oscar Niemeyer were the innovative architects of the new capital, a modern city surrounded by dormitory cities where those that first built the capital settled.

Location of Brasilia and the Distrito Federal

7. The GDF serves a population 5-6 times larger than initially envisaged. Brasilia was designed in the 1950s to serve a maximum of a half million people by 2000. However, with one of the highest population growth rates in the country (about 3% a year), in great measure due to migration from other parts of the country, the DF now has approximately 2.5 million inhabitants2. In addition, there are a number of neighboring municipalities located in Goiás and

2 IBGE 2008.

Minas Gerais (the region called the Entorno3), which rely heavily on the economic and social opportunities in the DF (the source of 60% of their economic growth). Together with these neighboring municipalities, the metropolitan area has a population of 3.2 million. The DF’s health sector alone responds to demand of an estimated 7 million people from the District and surrounding states.

The Administrative Regions of the Distrito Federal

8. The Federal District is a poli-centric metropolitan area with very low population densities between Brasilia and the other urban centers, often with distances of 30 km or more between them. The DF covers a rectangular area of 5,789 square kilometers (of which 5,534 are rural) in the center-west State of Goiás. The DF also shares a very small border with the State of Minas Gerais. The DF is divided into 19 administrative regions (Regioes Administrativas), including the capital city of Brasilia. Large flows of immigrants and weak land-use policies have resulted in significant urban sprawl which has shaped the urban structure. Jobs, services, and investments are mostly concentrated in Brasilia. The DF’s economic base relies heavily on public administration services (60% GDP) followed by financial services (15% GDP) and industry (3% GDP), although industry, construction and commerce services have recently increased in relevance.

9. The DF has multiple, urgent demands for greater public investment, which increase the need for greater expenditure efficiency. The public sector issues in the Federal District are unlike those in any other subnational entity in Brazil, as the DF shares the attributes and responsibilities of both a state and a municipality. GDF revenues include state and municipal

3 The Entorno includes municipalities from the States of Goiás (Abadiânia, Água Fria de Goiás, Águas Lindas de Goiás, Alexânia, Cabeceiras, Cidade Ocidental, Cocalzinho de Goiás, Corumbá de Goiás, Cristalina, Formosa, Luziânia, Mimoso de Goiás, Novo Gama, Padre Bernardo, Pirenópolis, Planaltina, Santo Antônio do Descoberto, Valparaizo de Goiás and Vila Boa) and Minas Gerais (Buritis, Cabeceira Grande and Unaí).

taxes. In addition, as the seat of the national government, the GDF receives an annual transfer from the national treasury to defray the costs associated with national-level responsibilities (e.g., security, diplomatic representation, etc.). Over the last several years, however, recurrent expenditures – particularly personnel – have absorbed an increasing share of the GDF budget. Consequently, public investment expenditures have been squeezed, falling from 11.8% to 9.2% of total public expenditure from 2005 to 2007. To reverse a worrisome trend in investment capacity and respond to the increasing public sector investment demands of a growing metropolitan region, the GDF must improve the efficiency and effectiveness of its public expenditures.

10. The GDF initiated significant reforms in the education, health, transport, environment and public safety sectors. Looking forward, the GDF is seeking support to promote a shift in its economic structure, which is mainly based on public services. The government is also initiating in a comprehensive program of fiscal reform and debt management, social security reform, and private sector development and city competitiveness. The GDF asked for Bank initial assistance on public sector reform, focusing on the education, health and transport sectors. The education and health sectors employ most of the GDF civil servants, and with the transport sector, are responsible for most of the GDF expenditure. In addition, access to, and the quality of the services in these sectors lead to poor education and health results, unequal coverage of the population by health and transport services, and, despite all the government efforts, low quality in the three sectors and unsatisfied customers. These factors negatively affect the GDF fiscal health, and equity and economic growth in the DF.

Education

11. From a relatively high starting point, the DF is experiencing a declining quality of education. Despite very high levels of public spending and good results by national standards, the performance of the DF’s education system is far behind international standards; and in recent years the quality of education has been deteriorating. Worrisome trends in student performance, age at entry, and age-grade distortion exemplify this decline. Results of recent national student assessment tests (National Basic Education System - Sistema de Avaliação da Educacao Basica or SAEB; and National High School Examination - Exame Nacional de Ensino Medio or ENEM) show that a majority of DF students are performing significantly below grade level. Age-grade distortion4 is also a significant problem: in the DF, the rate is about 30% in the first nine years of basic education5, but in nighttime shifts6 reaches 96% in the 8th grade, and 80% in secondary schools.

12. Inequities in education coverage persist. Achieving universal coverage remains a challenge, mainly in secondary education. High migration from other parts of the country to the DF’s Administrative Regions has created demand pressures and has resulted in imbalances of resources and services. This is particularly important in early childhood development (ECD) education, where 30 percent of children ages 4-6 do not attend any type of preschool program in

4 Age-grade distortion arises when students fail a grade and are held back, making them older than their classmates who are of appropriate age for the school grade. 5 Basic education includes 9 years of fundamental education and 3 years of secondary education. 6 To accommodate additional students, some schools offer classes in the evening, usually from 6:30 pm to 10:00 pm

the DF. This trend could negatively impact the future education attainment of children, especially from poor families. The results of the Index of Development of Basic Education (IDEB) also show huge inequalities in the system. While some schools in the central area of the DF have an IDEB of 6.4 (on IDEB’s 1-10 scale, with 10 being best), other DF schools present an IDEB of 1.6, close to some of the worst IDEB scores in the country, some of which come from schools in remote areas of Brazil7.

13. There are insufficient opportunities for secondary and vocational education. The GDF must also respond to the increased demand for secondary education and vocational training. There has been a growing awareness among high school dropouts that job opportunities are limited in Brazil’s increasingly sophisticated economy, and the return of young adults to school is another recent phenomenon putting pressure on secondary education. Though overall this trend is a positive one, it also creates new challenges. Currently there are inadequate education opportunities for youth and young adults in the DF. The education system must be able to generate additional capacity, and must devise a suitable methodology to effectively address the educational requirements of this population, including the 70,000 DF inhabitants in the age cohort 15-29 that are illiterate8.

Health

14. The DF suffers high rates of disease. The DF is well advanced in the epidemiological transition9, but it still has a significant burden of communicable diseases. Over 50% of notified cases of communicable diseases in 2005 were of viral hepatitis. Incidence rates of AIDS and congenital syphilis are above the Brazilian averages. The tuberculosis cure rates are below the national and WHO-recommended target of 85%. The DF and Administrative Regions are also priority areas for the control of dengue (892 cases in 2007, 1,029 cases in the first trimester of 200810). Mortality rates from non-communicable diseases and injuries in the DF are well above Brazilian averages, especially from cardiovascular diseases (CVD), diabetes, cervical and breast cancers, traffic accidents and homicide. External causes, which are linked to traffic accidents and violence, are the second highest cause of mortality in the DF after CVD.

15. The DF health system suffers from the typical maladies of the Brazilian National Health System: unequal coverage, low quality and inefficiency. Substantial disparities exist in health status, resource allocation, coverage and service utilization among income groups and regions, and between the capital city and Administrative Regions. There are waiting lists for ambulatory, emergency and hospital care, with unmet demand for medical visits, tests and surgery; mental health care is unavailable; the supply of essential pharmaceutical drugs and medical supplies is not guaranteed; the public health infrastructure is deteriorating; and the Health Secretariat has an inefficient structure that impedes modern management practices and

7 INEP, IDEB 2006 8 According to the 2005 PNAD (Pesquisa Nacional de Amostra por Domicilios). 9 Epidemiological transition refers to the change in the pattern of diseases away from infectious diseases towards non-communicable diseases. This transition is usually correlated with improved life conditions, better access to health services, and progress in economic development. 10 Ministerio da Saude 2008. Informe Epidemiológico da Dengue Janeiro a Abril de 2008. Portal do Governo.

robust service delivery. In addition to these issues, the DF health system offers poor quality services and is inefficient in resource utilization, particularly in serving poor populations.

16. The health system cannot keep up with the demand from within the DF and its neighboring regions; the latter add more than 4 million people to the system. The DF’s health system responds to significant demand from populations within the Entorno, which are not residents of the Distrito Federal and thus should technically be covered by the health systems of their own states. Residents of the states of Goias and Minas Gerais that live near the DF often utilize DF clinics or hospitals that are closer in proximity than their state institutions or, in spite of systemic problems, are perceived to be of relatively higher quality. In 2006, 11% of emergency care and almost 23% of inpatient care was provided to people who live in the region of the Entorno. This excess demand overloads the DF’s health system both financially and operationally.

Transport

17. The DF’s transport system is also under strain from the DF’s urban structure and mobility patterns. The concentration of the majority of DF jobs in Brasilia, combined with urban sprawl and the sparsely populated areas between Brasilia and the satellite cities, generates very long trips that put a heavy strain on the transport infrastructure (mainly radial high-speed freeways with limited circumferential connections) and causes significant peak-hour congestion. Adding to these challenges, car ownership has been increasing very rapidly (about 7% annually over the last 5 years) and public transport modal share has been decreasing (14% decrease between 1993 and 2002).

18. Public transport is expensive and inefficient, which encouraged the provision of alternative illegal services. The time and cost of the daily commute are high, especially for the poorest that live in the most remote areas. The daily average commute (round-trip) is approximately one hour and 40 minutes. The bus fare for a trip from an Administrative Region to Brasilia is R$3 (about US$1.80), one of the highest in Brazil and in Latin America, and no integrated fare exists, so if passengers have to take more than one bus (about 21% of all the users) or switch to the subway to reach their destination, they must pay an additional fare. Trip frequencies in off-peak periods are inadequate and buses often run only twice per hour. In a 2007 rider survey, 45% of DF respondents rated overall bus service quality as ‘bad’ or ‘very bad’. In response, illegal, point-to-point services provided by van or private car flourished in the DF, presenting a significant problem in terms of safety and added congestion. However, the GDF has recently made considerable efforts to control and/or eliminate these services.

19. The public transport institutions are weak and have lost control over significant parts of the system. Under the previous government, the DF’s Transport Secretariat (SET), in a centralization effort, took over the operational planning, coordination, and management of public transport services, without having the necessary capacity and resources to do so. This led to a neglect of SET’s key functions of sector planning and policy making. The move also significantly weakened DFTRANS, the entity responsible for public bus transport provision, and caused critical gaps in capacity, staffing, key systems, equipment, procedures and processes. Because of this institutional weakening, DFTRANS also lost control over the operational and financial data of the bus system, which is currently in the hands of the private bus operators.

These operators, who have expired operating licenses (permissions), also took over the management of service provision, creating their own rules and deciding on their own operational programs. DFTRANS’ supervision and enforcement capacity is inadequate, and the operators’ compliance with timetables and itineraries is only around 77%. This explains the deterioration in the quality of public transport services and the huge amount of complaints received by DFTRANS (14,000 received in 2007).

B. Rationale for Bank involvement

20. The proposed project aligns closely with both the current reform processes underway in the GDF and with World Bank strategy. Taken as a whole, Governor Arruda's first year in office produced important reforms and capacity expansion. His administration’s achievements, plus the structural and institutional strengthening programs projected for the remainder of his term in office, amply justify this proposed operation. The project will be implemented in the country’s capital, a high-profile entity with fiscal space and a reformist Governor who is a strong proponent of the Choque de Gestão model. The project demonstration effect will thus be amplified, and will likely lead to additional states requesting Bank assistance on public sector management reform. The project will support improved practices for more effective and efficient GDF spending across the board -- not only in the targeted sectors. It is hoped that the improved practices developed and refined in this GDF project can be used in future Bank projects involving public sector management in other parts of the world.

21. The Parliament of the Federal District and COFIEX approved the GDF $130 million loan request; and the national Treasury Secretary (STN) approved the PAF11 including a loan in this amount for the project. In addition, the legislative and judicial branches comply with the LFR requirement of spending less than 3% on staff (2.7% in April 2008); this LFR indicator will be measured again in August. In the meantime, the federal Government submitted a draft law to Congress that would require each branch to be responsible for its own expenditures, which would relieve the GDF of responsibility for judicial and legislature expenditures.

Government Strategy

22. The GDF has been making significant progress on debt reduction for several years. The GDF has taken important steps during the last five years to put its fiscal house in order, a trend which was consolidated under Governor Arruda. Between 2002 and April 2007, the GDF reduced its indebtedness level from 40 percent to 20 percent of net current revenue, thereby increasing significantly the fiscal space to take on additional debt (the Law on Fiscal Responsibility – LFR - ceiling for indebtedness is 200 percent of net current revenues). In addition, by generating primary surpluses much higher than its debt service obligations, the GDF has strengthened its debt repayment capacity. Addressing the fiscal situation was a prerequisite for the approval of this proposed project and other new operations.

23. The GDF Public Sector Reform Strategy builds on achievements realized during the first year of the Arruda Administration, especially in improved public sector management

11 PAF (Annual Financing Plan) is a rolling 3-year plan including macro-targets agreed between DF and STN, and which identifies the overall lending envelope.

and fiscal prudence. The fiscal program undertaken by the new administration included negotiating significant reductions and paying down DF debt, while also constraining recurrent costs in benefit of productive investments. Governor Arruda implemented cost-cutting measures throughout his government, including reducing the number of Secretariats from 40 to 16, terminating 140 building leases and returning rented vehicles. The number of commissioned employees (cargos comissionados) was cut in half along with the cost and value of suppliers’ contracts to further create fiscal space. The Governor moved his own offices into military police quarters to save money. An analysis was made of major construction works that had been stopped for lack of resources, and strategic choices were made regarding which among them would continue.

24. In addition to these achievements, the threats to the DF’s fiscal health prompted a comprehensive, strategic response to the upward trend of personnel expenditures and the growing demand for investments: the GDF introduced Results Agreements. In 2007 the Arruda Administration identified a set of 17 Strategic Projects (Projetos Estrategicos) that would be subject to intensive management supervision and monthly reporting against implementation benchmarks. In 2008 the number was increased to 19 Strategic Projects. However, these programs cover only a small fraction of GDF public services and priorities. That same year, the Department for Monitoring and Evaluation of Government Programs (Diretoria de Acompanhamento e Avaliação das Ações Governamentais, DAAG) of the Secretary of Planning and Management (SEPLAG) initiated work in collaboration with the other government Secretariats to develop strategic planning and results-based management. The focal point of this management reform is the introduction of annual Results Agreements (Termos de Compromisso) between the Governor and each of the Secretariats and agencies (Annex 1). These Results Agreements (RAs) will impose discipline on both policy-making and public management by defining a strategic government agenda and instituting a new monitoring and evaluation (M&E) system to produce disaggregated performance data on government expenditures and programs.

25. Under the Results Agreements, the GDF Secretariats must define and publish strategic outcomes, annual performance indicators and action plans for their organizations. These measurable performance indicators and action plans are included as annexes to the Results Agreements signed between the Governor and Secretariats and GDF agencies. At the time of project preparation, an RA already had been signed with the Health Secretariat, and the strategic planning phase had been completed for another seven Secretariats, including Education and Transport. As part of the Government’s management reform model, these RAs will be complemented by subordinate (second-level) agreements between the Secretariats, agencies and the individuals and/or institutions responsible for actually achieving the performance results (e.g., school principals, hospital directors). The proposed project will support this results-based approach, including reporting and publishing results achieved and providing incentives for improved performance.

26. Financial rewards are being designed for employees of line departments and service delivery units (e.g., schools) that meet their performance targets under the RAs. A draft law authorizing performance bonus payments was submitted to the DF Legislative Chamber in 2008. In education, the RA foresees bonus payments for high-performing staff that should contribute to quality results and meeting agreed targets. However, the specific regulations needed to implement this award have yet to be finalized and issued. The eligibility criteria and

maximum amounts that can be awarded in the form of performance bonuses have yet to be specified. The GDF will assess the fiscal sustainability of these awards in light of the government's total wage bill cost when preparing the implementing legislation/decree for employee bonuses.

GDF Education Strategy

27. Aiming at reversing the declining trend in education quality, the new administration has made impressive gains in education during their first year in office and the project will build on these achievements. The Brazilian Constitution obliges sub-national governments to spend at least 25% of their revenue on education, but the GDF plans to spend 33% in 2008. The year began with an increase in teaching capacity equivalent to 51,000 new vacancies. Qualifying tests (concursos) were held and 1,500 teachers hired. Over 300 schools were renovated, 30 new schools were inaugurated, and another 20 are under construction or planned for construction in the near future. In addition, a number of programs were successfully launched in 2007 that support DF education including payment of University of Brasilia (UNB) vestibular (SAT equivalent) test fees, opening of schools for weekend activities (50 Escolas Abertas) to provide alternative activities for children and adolescents who might otherwise be on the streets, recruitment of private sector school supporters (1,500 Parceiros da Escola), and graduation of the first adult literacy cohort (10,000 Programa Alfabetização de Adultos graduates).

28. The project will also advance the GDF’s new management strategy in the education sector. The GDF has three main education objectives for the period 2007-2010: (a) to improve the quality, and efficiency of basic education; (b) to guarantee equality of education by establishing and implementing specific performance-based incentives for schools, mainly those with the lowest education indicators; and (c) to modernize the management of the education system by adopting performance-based results strategies. To achieve these objectives, the GDF has adopted the Gestão Compartilhada, a schools-based management strategy, as the centerpiece in its strategy. The Gestão Compartilhada introduces new policies and comprehensive reforms to school management, which include changes in the selection methods for school principals, introduction of new mechanisms for transferring financial resources to schools, establishment of School Councils and performance-based incentives for schools and results-based management strategies for improving accountability and the quality of education. The proposed project will support these important GDF initiatives and will complement ongoing activities.

29. The GDF is developing other programs to combat inequalities in the education system. These new programs include: (a) the implementation of a full-time school program (Escola de Tempo Integral - which comprises rehabilitation of school facilities, provision of additional pedagogical, cultural and sport education activities over longer school-day hours) in at least 100 schools located in the poorest areas of the DF by 2010; (b) the establishment of early childhood development programs for poor children; (c) the development of accelerated education programs for over-age students both in primary and secondary education; and (d) the implementation of literacy programs focused primarily on the age 15-29 cohort that needs to enter into the labor force. In addition, the GDF’s Secretariat of Education (SEE) intends to develop vocational and technical training programs and provide scholarships and support for low-income students to access higher education programs.

GDF Health Strategy

30. The GDF has begun a comprehensive health sector reform program, which the proposed project will advance. The reform program is focused on several objectives: (a) decentralizing health care from Brasilia to the Administrative Regions; (b) modernizing the sector, making it more responsive to demand by focusing on expanding primary health care throughout the region and improving the quality of care and efficiency at all levels of the system; and (c) integrating the health system electronically, by establishing a data network linking all levels of the system, to which users will have access through a health card.

31. The DF’s health system is complex and forward-looking. The GDF’s Health Secretariat (SES) was the first to sign Results Agreements with the Governor and subordinate RAs with health units in January 2008. The Brazilian Constitution obliges the GDF to spend 13% of its annual budget on health, but in 2008 the government is programmed to spend 20% of its budget in the sector. The SES, health care centers, hospitals, laboratories and public pharmacies will be electronically connected, and citizens will have an electronic health card (Cartão da Saúde). The multi-purpose card is the size of a credit card and holds embedded medical information that can be used and updated by providers at all levels of the health system. The card also allows for generation of epidemiological data, and correlation analysis of clinical, administrative and management data. In addition, it will allow identification of patients by residence, although this will not be used to exclude those living outside the DF from using the DF health care system.

32. Under the GDF reform program, it is expected that the capacity of primary health care (PHC) services to solve health problems will increase, reducing the pressure on emergency services and hospitals. The main strategy and feature of Brazil’s national health reform has been the decentralization of service provision from the federal government to states and municipalities. Health system decentralization in the DF is being pursued through expansion of PHC, with the establishment of 294 Family Health Teams in Administrative Regions by 2012. Primary health care and hospital care will be integrated through clinical guidelines and referral protocols, and the electronic system. In addition, the new Hospital de Santa Maria, which was recently inaugurated, will be managed by a Social Organization (OS-Organização Social). The project will support these reforms, and will measure progress in the implementation of OS management.

GDF Transport Strategy - Brasilia Integrada

33. As part of the GDF’s 2007-2010 Economic and Social Development Plan, which envisages increased efficiency of the interurban and intra-urban transport systems, the GDF launched a comprehensive long-term program to improve mobility - Brasilia Integrada. Brasilia Integrada provides a framework for urban transport improvements in the DF based on principles such as coordination between land use and transport policies, placing a high priority on public transport and non-motorized transport solutions, creation of an integrated transport system, universal accessibility, and the introduction of new technologies for public transport. The main transport initiatives and investments in the DF, most of them already ongoing, include: (i) the preparation of an urban transport master plan (Plano Diretor de Transporte Urbano – PDTU); (ii) the Urban Transport Program, co-financed through a loan from

the Inter-American Development Bank (IADB), to modernize the public transport system by bus and foster integration; (iii) the extension of the subway and the construction of additional stations; (iv) the implementation of a light rail system from the Terminal Asa Sul in Brasilia to the 502 Norte freeway; (v) the implementation of a Bus Rapid Transit (BRT) system connecting Gama and Santa Maria with the center of Brasilia; (vi) road improvements; and (vii) public transport fleet renewal.

34. While the Urban Transport Program receives a boost from a $176 million IADB loan, there is a huge need for additional resources, especially in terms of technical assistance and capacity strengthening. The IADB financing focuses mainly on bus infrastructure and safety interventions, including non-motorized transport. In addition, the financing arrangements for some of the major transport investments are being sorted out: the proposed light rail system would be financed by the French Development Agency, and the Gama-Santa Maria busway corridor may be financed by Corporacion Andina de Fomento (CAF). Consequently, the proposed Bank-financed project will contribute to strengthening capacity and modernizing the sector management.

35. Important transport sector reforms and improvements have already taken place, indicating the scope of reform and emphasizing the critical need for management and institutional strengthening in the sector. A number of important institutional and regulatory reforms have paved the way for the implementation of Brasilia Integrada, but modernization and capacity strengthening in the public transport sector still constitute a challenge.

GDF Economic Strategy - Brasilia Competitiva

36. The GDF aims at promoting a shift in the District’s economic structure. In particular, the agenda seeks to decentralize the DF’s economic space in two areas: urban and rural to move away from the current “centrality” and public sector focus of the DF’s economy. The GDF is engaged on fiscal reform, debt management, social security reform, and private sector development and city competitiveness, aiming at improving the DF's competitiveness and decreasing unemployment in the region.

Bank Priorities

37. The proposed Multisector Public Management Program will be the second Bank financed-project in the DF. The GDF has been satisfactorily implementing the Brasília Environmentally Sustainable Project (Brasilia Sustentavel) since 2005. That project aims to meet the growing needs of the Brasília Metropolitan Region through more sustainable use of scarce natural resources—such as water—while strengthening the capacity of the GDF to manage regional development and land management issues, water resources and urban sanitation. The DF has also benefited from Bank-financed federal projects in Brazil’s education and health sectors, as for example the VIGISUS, Family Health and AIDS Projects.

38. The GDF reform program is in line with the priorities of the 2008-2011 Country Partnership Strategy (CPS) and the sector strategies, which focus on improving the well- being of Brazilians by fostering greater equity, sustainability, competitiveness and sound macroeconomic management. Improving the quality of public spending is the “desafio

paradigmatico” (paradigmatic challenge) par excellence in Brazil. The project thus conforms with the CPS objective of engaging in the complex, long-standing development challenges where Brazil still needs and wants help from a global development partner. The program also aligns with the emphasis on subnational issues in the current CPS. Additionally, by promoting integration between the different administrative DF regions and neighboring municipalities, this program will also foster regional integration, one of the key priorities of the CPS.

39. The GDF SWAp project design follows Bank/IEG recommendations for Bank investment in middle-income countries (MICs) in several ways:

• The proposed project focuses on (a) reducing inequalities, especially in the social sectors; (b) combating corruption, through de-bureaucratization and programs such as the PEFA diagnostic tool (which assess financial management systems, Annex 7); OECD Indicators (which assess procurement systems, Annex 8), and (c) protecting the environment. • The project draws on GDF capacity to promote ownership. This type of project is possible because the client is well advanced in public sector reform, and the Bank draws on the government’s own agenda, programs and indicators. • Best practices will be demonstrated and shared, thus transferring knowledge. The Bank will be supporting results-based management (RBM) initiatives in the DF, supporting good practice initiatives such as de-bureaucratization, through agreed results and technical assistance. The proposed project design benefits from inputs from other results-based SWAps in Brazil, and lessons learned from this project may be useful to other Bank clients in Brazil and elsewhere. • The response is more agile. The proposed project follows the government’s agenda and systems, which allows for more efficient preparation and implementation, while reinforcing the government’s agenda of good practices. • The project expands the choice of lending vehicles and services. The Bank has refined the SWAp instrument in Brazil so that it has become a robust lending instrument for advancing reform agendas across sectors, strengthening the performance of state expenditure management systems (including oversight), and conditioning disbursements on the attainment of key results. • Other projects following a SWAp approach are currently being adapted to the states of Ceará (second phase of an APL), Minas Gerais and Pernambuco. All these projects support public sector management (RBM and Results Agreements), education and fiduciary reform, and have very similar disbursement mechanisms (DLIs, rule on execution of at least 70% of EEPs, etc). The Minas Gerais Program is the most advanced reform program, supporting a clear-cut business agenda (PPPs, competitiveness) and improvements in sectors’ quality (Annex 2).

40. The Bank brings extensive national and international experience on public management reform - and results-based management specifically - which can support the reform objectives articulated by the GDF. To cite just two examples, the Bank partnered with the State of Minas Gerais through a DPL operation to support the Choque de Gestão implemented by Governor Neves’ administration. That management reform includes the use of sophisticated Results Agreements, which serve as a point of reference (and provide lessons) for

the present operation. In addition, at the request of the Chilean government, the Bank has recently carried out an evaluation of the well-regarded Chilean Management Enhancement Program. The Bank team brings detailed knowledge of these experiences to the design and implementation of the GDF program.

41. Bank support will help the DF to implement the education reform program, which focuses on improving the quality of basic education, adoption of school- based management and performance-based results strategies. To address equality issues across the system, special attention will be given to schools located in low-income areas, which are usually the schools with the lowest performance indicators. The new reform agenda and strategies are expected to increase inclusion of low-income groups in the education system as well as improve the quality of service delivery in the sector.

42. The Bank has extensive experience in assisting countries in Latin America and other regions to strengthen health care systems, including through the establishment of primary health care and modernization and rationalization of the hospital sector. In Brazil, the Bank’s experience in development of primary health care will allow it to assist the GDF to quickly expand PHC in order to guarantee increased access for the poorest and most remote populations, and to decrease pressure on hospitals. In addition, Bank support will allow the GDF to focus its reform agenda on improving the RBM approach across the health care system. This support to RBM and PHC are expected to contribute to the reduction of burden of disease, increased access and satisfaction of health system users, and cost containment.

43. The proposed Bank support comes at a time when the basic decision to implement profound changes in the DF’s public transport system has been taken and important reforms have been started, although challenges remain on the institutional, managerial, and operational sides. Consequently, drawing on its experience in urban transport and especially recent bus reform projects in Brazil (Recife, Sao Paulo) and in other Latin American countries (Chile, Colombia and Mexico) and elsewhere, the Bank is in a unique position to provide valuable expert advice and support critical institutional and management issues. The Bank will support the institutional and operational strengthening activities in the transport sector, thus contributing limited financial resources but high value-added expertise to the urban transport reforms already begun by the GDF. Additionally, through policy dialogue, the Bank will be able to advocate for important issues, such as improved enforcement, fine payment and competitive bidding of bus operations, and will act as a catalyst to strengthen GDF’s case in their relations with the private operators.

C. Higher level objectives to which the project contributes

44. The GDF Multisector Public Management Program is a long-term endeavor to support reforms in public sector management. The three pillars of the program are modernization, decentralization and integration of public services. The project, by supporting and complementing the GDF’s plan, will contribute to improve the quality of life of DF residents, reduce inequalities between Brasilia and the surrounding Administrative Regions, and increase the DF’s competitiveness and growth potential.

II. PROJECT DESCRIPTION

A. Lending instrument

45. The Project will co-finance the $400 million GDF Multisector Public Management Program through a Specific Investment Loan (SIL) of US $130 million to be disbursed in three years (2009-2012). The project will follow a Sector Wide Approach (SWAp), with the Bank co-financing a percentage of Government Eligible Expenditure Programs (EEP). Disbursements will be triggered by the execution of the agreed reform programs and achievement of specific result targets. The project will use state government systems, procedures and staff, both to foster ownership and to strengthen the GDF’s institutional capacity.

B. Program objective and phases

46. The proposed project will support GDF reform in public sector management as an overall strategy, as well as targeted programs in the education, health and transport sectors. The GDF multi-sector management reform program is a long-term endeavor to be implemented over a decade. The first phase is this 3-year project, supported by Bank financing consisting of: (a) a SWAp component of US$120 million disbursing to the State Treasury against actual expenditures in EEPs in the education, health and transport sectors; and (b) a US$10 million technical assistance component disbursing against unaudited interim financial reports (IFRs). The GDF will consider the need for financing of the second stage once implementation of the first stage is well advanced.

C. Project development objective and key indicators

47. The proposed project development objectives (PDOs) are the following:

(i) improve public sector management and accountability by supporting and expanding results-based management practices and improving fiduciary oversight; (ii) increase access, quality and efficiency of the education, health and public transport services by modernizing the education system; modernizing, decentralizing and integrating various levels of health care; and strengthening the institutional and operational capacity of the public transport sector.

48. Project Development Indicators (PDIs). The project will track 28 project development indicators that will measure progress towards achievement of the PDOs. Some of these PDIs are also indicators that will trigger disbursements (Disbursement- Linked Indicators, or DLIs). The remainder, while not linked to disbursements, will measure implementation progress and contribute to substantive dialogue between Bank sector experts and government counterparts during project implementation. All indicators will be included in the Project Operational Manual, and progress toward meeting all indicators will be tracked and reported systematically. Annex 3 includes all project development indicators with information about baseline data, annual targets and protocols for calculating each indicator, as well as which are DLIs.

Project Development Indicators Global Indicators Baseline

Comply with the PAF (Annual Financing Plan) every semester as Complies measured by (i) ratio financial debt/real net income; and (ii) expenditures on personnel. Execute every semester at least 70% of the budget of each Eligible NA Expenditure Program included in the project. Sector-specific Project Development Indicators

PSM 26 Secretariats/GDF agencies sign annual performance agreements 1 signed 21 Report annually on performance. No reporting A fiduciary reform strategy fully implemented in 2011, including Financial Management Reform Action Plan based on PEFA Fiduciary diagnostic. Action Plans Procurement Action Plan based on OECD Indicators diagnostic. agreed Performance incentives are implemented in the education sector No incentives Performance incentives are implemented in the health sector12 No incentives Education By 2011 Increase efficiency of school management strategies NA Improve IDEB score in 125 selected schools 0 Increase access to early childhood programs for children ages 4 to 5 in 77% low-income areas to 90% Improve completion rates in basic education (grades 1-9) to 80% 63% Improve completion rates in secondary education to 85% 75% Decrease the number of students with overage distortion rate in basic 92,000 education (grades 1 to 9) to less than 17,000 Decrease the number of students with overage distortion rate in secondary 34,800 education to less than 3,000 Implement a full-time school program (Tempo Integral) in 100 schools 0 located in low-income areas Health By 2011 Provide the Citizen Health Card to 50% of the DF population. 10% Cover 40% population by the Family Health Program. 7% Cover 80% pregnant women with at least 4 prenatal visits in Brazlândia, 72% Paranoá, Riacho Fundo and Samambaia. Decrease hospital internment rate due to complications of diabetes to 1.7% 1.9% Increase proportion of infant deaths investigated to 90% 40% Increase pap smear rate in women 25-29 years old to 20% 13.4% Establish OS management in the Hospital St. Maria. OS starts Transport By 2011 Submit the Urban Transport Master Plan for approval by legislature. No Plan Control operational and fare revenues data of the basic bus service. Partial access Monitor remotely 10% of the fleet of the basic bus service through the Not Control Center for Operations (CCO). monitored Increase the regularity index for trip compliance (timetables and itineraries) of operators of the basic bus service to 90%. 77% Reduce number of complaints received by DFTRANS regarding 9,000 compliance with timetables and itineraries to 7,000.

12 This requires approval of a specific law.

D. Project components

49. Component 1. Strengthening Results-Based Management in the Public Sector (US$ 390 million). This component will contribute to the implementation of the proposed program by supporting critical public sector management reforms targeting the education, health and transport sectors. The Component follows a SWAp approach by financing a percentage of the Eligible Expenditure Programs (EEPs) in these sectors.

50. Institutionalizing RBM in policy-setting and public administration, as well as strengthening fiduciary oversight, will have a positive impact on the efficiency and effectiveness of government expenditures, including the three targeted sectors. A project disbursement-linked indicator (DLI) will support the spread of annual Results Agreements across the Secretariats and agencies of the GDF. To create incentives for performance improvements and to strengthen administrative accountability, it will be essential to report performance against the agreed RA targets in a timely and user-friendly manner. Thus, the project also includes Secretariat/GDF Agency Performance Reports (SPRs) as a DLI. Each line secretariat with a signed RA is to present an annual report on its performance, both for accountability and for budget and planning purposes. Subject to legislature approval, the GDF also plans to introduce rewards (e.g., additional budget, bonus payments) for those organizations/units that meet or exceed their performance targets. Progress toward implementing these rewards in the education and health sectors will be tracked as a project indicator, although not linked to disbursement. While the Project will track implementation of monetary performance bonuses under the GDF's performance-based management reform, loan funds will not finance any part of the cost of the bonuses, as the budget authorization for these payments to high-performing government personnel is not included in the EEPs.

51. The SWAp Component will finance Eligible Expenditure Programs (EEPs) in the areas of education, health and transport (Annex 5) that will contribute to:

Modernizing the education system, aiming at improving the quality, efficiency and equity of basic education. These reforms will be achieved by adopting the Gestão Compartilhada model, which includes performance-based results strategies and performance-based incentives for schools, and supporting early childhood, primary and secondary education. The project will target schools with the lowest education indicators, and those located in low-income areas of the DF. Modernizing, decentralizing and integrating various levels of health care, aiming at increasing access, quality and efficiency. These objectives will be achieved through the establishment of RBM practices in the sector, development of managerial and clinical information system and of the Cartão de Saúde; extension of PHC (including by establishing 127 Family Health teams in Administrative Regions) to decrease pressure on hospitals; and piloting of management of the Hospital Sta. Maria by an OS, which could be eventually replicated in other hospitals. Modernizing, improving management and capacity strengthening in the SET and DFTRANS to permit them to more effectively and efficiently plan, regulate, manage, and supervise public transport services and ultimately improve access and quality. This will include, among others, establishment of a Transport Control Center

for Operations (CCO), capacity strengthening and system improvements (the establishment of the CCO does not involve construction)

52. Component 2. Building Capacity in the Public Sector (US$ 10 million). This component will finance technical assistance and training to support fulfillment of the performance targets established in Component 1. Specific technical assistance activities are included to support the implementation of results-based management in the GDF, particularly in the targeted sectors. Resources are included for training in strategic planning, definition of indicators (for first- and second-level RAs), and M&E for staff of SEPLAG and the Secretariats of Education, Health, Transport and DFTRANS. As it is critical to evaluate progress and draw lessons for ongoing improvement, the Project assigns TA resources to carry out an impact evaluation of the Management Modernization program, to be completed in 2011.

53. Resources are allocated to support the design and implementation of cost- accounting systems in the education and health sectors. Developing this capacity to measure the costs of outputs of individual service delivery units (e.g., schools, surgical units in hospitals) is critical to improve over time the quality of performance indicators that may be included in the Results Agreements (both for first- and second-level RAs). This exercise will drive greater efficiency as well as effectiveness in government expenditures. The Project’s TA resources for these cost-accounting systems will complement R$2.4 million that the GDF has mobilized through the Competitive Brazil Movement (Movimento Brasil Competitivo, MBC), a non-profit organization, certified as an OSCIP (Organização da Sociedade Civil de Interesse Público). MBC work will be complemented by the Bank’s TA resources to design and develop a cost- accounting system in these two sectors. When finished, these systems will link to the Financial Management improvements tracked as a PDI. Coordination of this activity represents a risk and technical challenge for the proposed project (see Appraisal Summary and Risk Matrix).

54. Component 2 will finance technical assistance to assess management programs in the education and health sectors (the education “Gestão Compartilhada” program and the public-private partnership to manage the Hospital Sta. Maria), outsourcing of some services in these two sectors (“Merenda Escolar” and hospital transport), and will support the SET and DFTRANS in their efforts to integrate the different public transport modes and to regularize the provision of public transport services in the DF. On the fiduciary side, Component 2 will finance technical assistance to assist the implementation of the Financial Management and Procurement Action Plans, the replication of the PEFA exercise that was carried out by the Bank during project preparation, and the modernization of the acquisition processes of the Purchasing Center and the Secretariats.

Project Components

Component 1. Strengthening Results-Based Management in the Public Sector PSM Results-based management Cost Accounting Systems Fiduciary oversight Eligible Expenditure Programs Education Modernization of the Education Management System (Gestao Compartilhada) Education Always (Tempo Integral) School for All (Escola para Todos) Health Modernization of the Health Sector Management- SES Development and Maintenance of the Health Information System Modernization of Primary Health Care Communicable Diseases Hospital Management Transport Management of the Public Transport Fund of the Federal District Maintenance of General Administrative Services - SET Maintenance of General Administrative Services - DFTRANS Supervision of the Public Transport System Maintenance and rehabilitation of bus terminals – automation of terminals Component 2. Building Capacity in the Public Sector PSM Capacity-building in strategic planning, project management and M&E for SEPLAG and Secretariats of Education, Health, Transport and DFTRANS Cost-accounting system for the education, health, transport and security sectors Impact evaluation of the Management Modernization program Evaluation of management of public services by OS, including hospital management Education Evaluation of teacher absenteeism Evaluation of the “Gestão Compartilhada” program Transport TA to integrate the different public transport modes and to regularize the provision of public transport services in the DF FM Implementation of Action Plan and repetition of PEFA exercise Procurement Integration of the e-procurement system with the budget/financial and assets control system TA and capacity building in the context of OECD indicators Modernization of the procurement processes of the Purchasing Center and the Secretariats, including DFTRANS Accountability Communication, Accountability and Participation Plan M&E M&E and Technical Auditing Environment Hospital Waste Study and Action Plan

Results-Based Disbursements

55. The project will follow a results-based financing approach, with loan funding of about 30% of total program costs contributing to the implementation of agreed policies and programs, and to the achievement of specific results, which will trigger disbursements. Project indicators were extensively discussed during project preparation to ensure that DLIs will present a challenge, but will not be so ambitious as to represent a high risk of failure in terms of project implementation and achievement of PDOs.

56. Achievement of Global Indicators will trigger loan disbursements every semester:

Compliance with the PAF (Annual Financing Plan) as measured every semester by (i) ratio financial debt/real net income; and (ii) expenditures on personnel. Eligible Expenditure Programs included in the project disburse at least 70% each period.

57. Under Component 1, disbursements will be made against Eligible Expenditure Programs (Annex 5), and triggered by annual progress on the following DLIs (values in the table below and Annex 3):

Secretariats/agencies sign annual results agreements. Secretariats/agencies report annually on performance. Access to early childhood program increases in low-income Administrative Regions for children 4-5 years. A full-time school program is implemented in schools located in low-income areas. The number of students with overage distortion rate in basic education (grades 1-9) decreases. The number of students with overage distortion rate in secondary education decreases. The Health Card is provided to the DF population. The DF population is covered by the Family Health Program. Pregnant women are covered with at least 4 prenatal visits in Brazlândia, Paranoá, Riacho Fundo and Samambaia. DFTRANS controls operational and fare revenue data of the basic bus service. DFTRANS remotely monitors the bus fleet of the basic bus service through the CCO.

58. Eligible Expenditure Programs will be annually budgeted and formally approved by the GDF, appearing with a budget code. GDF financial systems will track and report EEP budget estimates and actual expenditures, which will enable the use of state systems for purposes of financial management. Disbursements will be made against actual EEP expenditures and based on results achieved. Amounts to be disbursed on a semi-annual basis are indicated on Annex 7.

59. The GDF asked for reimbursements to be made every semester, the first one of each year in February, and the second one in August, to reimburse actual expenditures under Component 1 for the previous semester (s). The first disbursement (retroactive) will take place as soon as the project becomes effective, and refer to a one year period before signing. The second disbursement will take place six months after Project effectiveness. Project disbursements

will be triggered by compliance every semester with the PAF and at least 70% execution of EEPs; and every year, by compliance with DLIs.

60. Compliance with the PAF target and the “70% rule” of budget execution will be measured every semester; compliance with PSM, Education, Health and Transport indicators will be measured in July of each year. The following steps will be followed to determine disbursements in every semester: Step 1) Determine whether the GDF complies with PAF; Step 2) Determine whether each sector meets the 70 % expenditure rule on the respective EEPs. If not, disbursement will be pro-rated; and Step 3). For compliant sectors, determine whether the DLIs have been met. If the PAF target is not achieved, the disbursement for the semester will be postponed until there is compliance. If the EEPs by sector are lower than 70%, disbursements will be pro-rated according to the level of execution of those EEPs (e.g. 66% execution of a sector EEPs would lead to 66% of disbursement for the sector). If a specific DLI is not reached, US$ 1 million will be deducted from the disbursement for the semester. For each DLI not timely achieved, the GDF and Bank will agree on a time-bound Action Plan which, when considered satisfactorily implemented by the Bank, will trigger the disbursement of the respective retained amount.

Remedies for Indicators not met Global Indicator Measurement Remedy Compliance with the PAF Semi-annual If this target is not achieved, the (Annual Financing Plan) as disbursement for the semester will be measured every semester by (i) postponed until there is compliance ratio financial debt/real net with the PAF. income; and (ii) expenditures on personnel.

EEPs included in the project Semi-annual Disbursement will be pro-rated execute every semester at least according to level of execution of 70% EEPs for each sector DLIs Measurement Remedy All Annual Each indicator has a base value of US$1 million. If a target is not achieved, US$1 million will be deducted from the disbursement for the semester. Disbursement takes place when a time-bound Action Plan agreed between the GDF and Bank is satisfactorily implemented.

61. In addition to GDF reporting, annual financial audits and procurement post reviews, and Bank supervision every semester, independent technical and financial reviews will be carried out annually to certify achievement of agreed results. The GDF will send project progress reports to the Bank by January 15 and July 15 of each year, and disbursements requests on February 15 and August 15 of each year. Bank supervision missions will review budget allocation and execution, and project results prior to disbursements. In addition, the

project will contract an independent organization (university, private sector, and/or UN agency) to undertake technical reviews of agreed results once a year prior to disbursements.

E. Lessons learned and reflected in the project design

62. Selecting indicators that are measurable, unambiguous, reasonable, and, most importantly, of high priority to the government will greatly affect the project’s success, especially for projects linking disbursements to results. The design of the project’s results- based disbursement mechanism took into account lessons learned from similarly-designed SWAp projects in Brazil. The disbursement mechanism used in this project has been satisfactorily tested in Ceará, and is being further developed in investment operations in Minas Gerais, Ceará, and Pernambuco. A lesson of earlier multi-sector SWAps is that the most difficult challenge associated with the SWAp model is the selection of good indicators. Likewise, lessons from other projects indicated that the following types of indicators should be avoided:

Composite indicators, especially those that rely on sequenced events as delays may jeopardize compliance; Indicators that depend upon the actions of numerous entities, especially if management capacity is questionable; Indicators for which the State does not have sufficient leverage in the form of funding or highly-desirable technical assistance to ensure that implementing agencies will make a good faith effort to comply; and Mandates to implement recommendations or study results that lead to subjective judgments as to whether or not performance can be deemed satisfactory.

63. These lessons are incorporated into the design of the project indicators. First, composite indicators have been avoided. Second, only “first-level” RAs (at the Secretariat/DF agency level) are used as DLI trigger, rather than “second-level” RAs at the level of service delivery units. And third, the technical assistance activity that requires a serious commitment by line Secretariats and agencies—the cost-accounting system for education and health—is technically challenging but a cardinal commitment of the Government, as evidenced by the signed protocol with the MBC.

64. Adoption of school-based management strategies improves accountability and quality of education. Recent qualitative studies carried out by Brazil’s Ministry of Education with the support of UNICEF and the World Bank show the importance of using school autonomy strategies as a tool for increasing school accountability, boosting community participation and improving student performance. The findings corroborate the results of previous best-practice international evaluations on school-based management strategies, which indicate that such practices have a significant impact on student achievement, attendance, and attainment. This project will support implementation of a schools-based management program in at least 90% of the DF’s schools.

65. Early childhood programs for low-income students are important to quality education attainments. Research on child development has demonstrated that individual capability for physical, emotional, social, and cognitive functioning are established during the first six years of life. International evidence also shows that investing in early childhood

education yields impacts on overall educational attainment, and on the internal efficiency of the formal education system. ECD programs improve children’s physical and mental health, reduce crime, violence and teenage pregnancy, and improve women’s labor force participation. Investments in human development in the earliest ages of life have some of the highest returns, both for equity and growth. Children from families with higher incomes and more educated parents are more likely to enroll in early childhood programs, while children from the poorest families often do not receive the early stimulation needed. Thus, the proposed program focuses resources on providing ECD programs for low-income students.

66. Use of special accelerated classes can reduce age-grade distortions. Special programs utilized in several states in Brazil (Paraná, Ceará, Pernambuco, São Paulo, and others) have successfully reduced age-grade distortions through the implementation of accelerated classes targeting over-age students. These classes offer high-quality teachers and materials, and intensive monitoring of teachers and students’ achievements and attendance. The proposed project incorporates these lessons and will implement similar class models.

67. Recent evaluations show that family health coverage is associated with lower infant mortality and higher vaccination and pre-natal coverage (Annex 1). A 10 percent increase in state-wide PSF coverage was associated with a 4.6 percent decrease in infant mortality (IMR) controlling for other health determinants; higher level of PSF coverage at the municipal level was associated with decreases in IMR, higher immunization rates and pre-natal overage and a reduction in hospital admissions; and higher municipal coverage is associated with lower admission rates for preventable diseases in children.

68. In Brazil, Social Organizations are good managers of hospitals. The proposed project will support piloting OSS management of the new Hospital Sta. Maria. A Bank-sponsored comparison of public-managed hospitals and hospitals managed by Social Organizations in Brazil found that the latter displayed significant better performance for quality (general and surgical mortality), productivity (discharges per general, surgical and clinical bed), spending (expenditures for discharge), and efficiency (bed turnover rate, bed substitution rate, bed occupancy, and length of stay).13

69. Institutional strengthening is crucial for implementation of reforms in the transport sector. The Curitiba, Bogotá and Santiago bus rapid transport experiences showed that important institutional changes, capacity strengthening, and operational improvements are essential to implement transport system reforms. In the case of the DF this is especially critical, since the primary organization responsible for the provision of public transport services was completely neglected for over ten years, resulting in private bus operators taking control of the public transport supply.

70. Slow implementation is not uncommon in transport projects. Reasons for the slow pace have included overoptimistic scheduling at appraisal and unrealistic political commitments. Implementation is less likely to be delayed in this project because the reform efforts have already been launched and a number of the activities supported by the project are already ongoing.

13 La Forgia G et al 2006. Enhancing Performance in Brazil’s Health Sector: Lessons from Innovations in São Paulo and Curitiba. Washington DC: The World Bank.

71. Bank sector specialists need to be involved in supervision and maintain a regular dialogue with the government. The proposed project is a vehicle for such multidisciplinary involvement. Both disbursement-linked indicators and other monitoring indicators provide fruitful avenues for ongoing dialogue. Supervision resources need to be made available to participating sectors, and the responsibilities of sectoral specialists need to be clear.

F. Alternatives considered and reasons for rejection

72. The scope of PSM reforms to be included in the project was extensively discussed. PSM reforms in the proposed project do not include a civil service reform (CSR). Many of the obstacles to CSR are set in federal legislation and are therefore beyond the reach of the state government. Plus, CSR is politically a very difficult task. This operation will impact incentives for very senior public officials, as well as public employees in sectors were incentives are attached to meeting RA performance targets (e.g., education). However, core civil service rules for employee selection, promotion, retirement, etc., will not be changed as part of the project.

73. Including Transport in the project was considered important to build capacity and improve sector management, which is essential for the success of the GDF’s ambitious and comprehensive mobility improvement program (Brasilia Integrada). It may also lay the groundwork for a potentially more significant Bank action in this sector in the near future. The transport sector has extensive support from IADB, and inclusion of the sector in this project adds to its complexity. However, as the GDF is pursuing significant reforms in the sector, and the IADB support focuses mainly on investments on infrastructure, it was considered relevant to invest on management reform and capacity strengthening in the sector.

74. One possibility that was considered was that of a separate, new Specific Investment Loan (SIL) with traditional expense-related disbursements. However, given the sophistication of the GDF and the flexibility that a SWAp-style SIL brings, as well as the accountability of results-based financing, it was considered that the latter was the best approach. The GDF asked for long-term support from the Bank, and an APL would make sense in these circumstances. The GDF program is meant to be implemented in two phases over a period of 10 years; however project financing was only authorized for the first phase.

75. Three options were considered in case agreed disbursement-linked results would not be achieved: (i) delaying disbursement; (ii) delaying pro-rated disbursement and agreeing on an Action Plan to correct the causes for a DLI not being met; or (iii) full disbursement accompanied by agreement on, and implementation of an Action Plan. The second option will ensure that the project will be implemented as planned, with a significant focus on achievement of results.

III. IMPLEMENTATION

A. Partnership arrangements (Annex 2)

76. A partnership is being established between the GDF and Competitive Brazil Movement (Movimento Brasil Competitivo, MBC) and the Bank. The GDF will coordinate inputs from the MBC-financed contract with the Management Development Institute (Instituto de Desenvolvimento Gerencial – INDG) (R$2.4 million) to identify and implement cost

reductions in the education and health sectors. MBC signed a cooperation agreement in March 2007 to assist the GDF implementing its Programa Modernizando a Gestão Publica, including the specific goal to optimize the use of public funds in the education and health sectors. Within this framework, the MBC will contract the Management Development Institute (Instituto de Desenvolvimento Gerencial, INDG) for a project to improve the quality of expenditures in these two sectors. These are the first two priority sectors where the GDF is committed to developing cost-accounting systems to improve the efficiency of public expenditures.

77. A partnership is being established between the GDF and the IADB PNAGE Program to support capacity-building for public employees. In December 2007, the GDF signed a support agreement with the IADB PNAGE program to support management strengthening activities from 2008-2011, particularly capacity building for public employees and the Government Administration School (Escola do Governo). The PNAGE program with the GDF is for a total of R$10 million (about US$6 million). PNAGE-funded activities do not overlap with the activities of the proposed project, as the general training activities to be supported by PNAGE are not focused on RBM capacity-building.

78. A partnership is being established between the GDF, IADB Urban Transport Program and the Bank-financed project to improve the DF’s public transport system. In January 2008, the GDF signed a loan with the IADB to support the Urban Transport aimed at improving mobility and accessibility through integration and mass transit bus system modernization. The Program finances bus transport infrastructure, transfer stations, road safety interventions, ramps at crosswalks, sidewalks, the modernization of the traffic light system, and bicycle paths or lanes. It also has an institutional strengthening component, which was considerably scaled down due to the devaluation of the dollar. The total cost of the Program is US$ 270 million, of which US$178 million will be financed by the IADB loan. The GDF has a number of other potential urban transport projects in its portfolio, such as the Gama-Santa Maria corridor.

79. The GDF is benefitting from the experience and activities launched by similar state Swap projects in Brazil. The Bank is supporting results-based management reforms though Swap projects in several Brazilian states. These operations share a focus on cross-cutting management modernization to support a government-wide performance orientation that is not limited to the priority sectors identified in Eligible Expenditure Programs. In this way, the state- level Swaps in Brazil are supporting a cultural transformation of government practice and accountability to the public.

80. The GDF benefits from Bank-financed projects at the federal level on education and health. In the health sector, the GDF is covered by the Bank-financed federal programs VIGISUS (surveillance, prevention and control of communicable and non-communicable diseases), Family Health and AIDS. The proposed GDF project will complement actions taken under those projects, especially regarding the extension of the Family Health Program (PSF) to cover 100% of the population with primary health care.

B. Institutional and implementation arrangements (Annex 6)

81. Project preparation was led by the State Management and Planning Secretariat, which will also coordinate implementation, including overseeing fiduciary and safeguards aspects, and reporting. The DF government was strongly involved in project preparation at the highest levels, including the Governor and several Secretariats, and the same level of commitment will be expected during project implementation. The Secretariats, Education, Health and Transport/DFTRANS have been deeply involved in the definition of the project indicators and preparation of their respective Eligible Expenditures Programs, and will be responsible for the implementation of the agreed sector reform programs to be financed under the project and for reaching the agreed results.

82. The project is considered integrated according to Bank’s project implementation arrangements classification criteria. In what concerns project management, the majority of the activities will be carried out by civil servants with regular salaries assisted by a few consultants. In the area of operational responsibility, project activities will be conducted by SEPLAG and the Secretariats of Education, Health and Transport/DFTRANS, with support functions such as procurement and financial management conducted by existing relevant departments and units. The GDF also coordinates the participation of the Urban Waste Management Service (Serviço de Limpeza Urbana) on issues related to health care waste. For reporting, each of the Secretariats and DFTRANS will report to SEGPLAN, which in turn will report to the Bank.

C. Monitoring and evaluation of outcomes/results (Annex 1 and 3)

83. The M&E system for Strategic Projects and Results Agreements represent a brand new innovation for the GDF. The Governor has named a special Coordinator, outside the hierarchy of the Secretariats, to be responsible for each Strategic Project. Implementation targets are established for each Strategic Project and progress is reported monthly with Red-Amber- Green ratings (“RAG ratings”). Meanwhile, strategic planning and results targets for Secretariat and GDF Agency performance are being developed by the Department for Monitoring and Evaluation of Government Programs of SEPLAG, in collaboration with the Secretariats and agencies. These targets will be given added managerial importance by inclusion in the annual Results Agreements (Termos de Compromisso) between the Governor and each of the line Secretariats and GDF agencies. The monitoring and evaluation (M&E) structures that support the Strategic Projects and the RAs are new tools in the GDF.

84. The GDF Secretariats and Agencies define strategic outcomes, annual performance indicators and action plans for their organizations. Monitoring and evaluation of project outcomes and results, and in particular the achievement of the disbursement-linked indicator targets, will be carried out by the Secretariats of Education, Health, and Transport/DFTRANS, with the assistance of the Project Coordination Unit in SEPLAG. Secretariats and agencies will report to SEPLAG, which in turn controls the quality of monitoring, and reports to the GDF and Bank on results achieved by the proposed project. SEPLAG is building the capacity of the different sectors for monitoring and evaluation.

85. There are several incentives that will encourage the adoption and meaningful use of these Results Agreements as a managerial and accountability tool. First and foremost, the

Governor has made clear that RAs will be a key tool of the government’s management reform program. Second, as described in detail below, the design of this project links performance-based disbursements to signing an increasing number of RAs, and to assessing subsequently Secretariat and agency performance against those RA targets. Third, the Project provides technical assistance support to strengthen the capacity of SEPLAG and line Secretariats and agencies to develop sound targets and monitor performance. Fourth, under the Government’s program, employee performance bonuses in the education sector will be linked to meeting performance targets set in the RAs. The Project will track implementation of that monetary reward policy. If a draft law in the legislative assembly is approved, similar monetary rewards will also be implemented in the health sector, and tracked by the Project during implementation. Finally, the publication and dissemination of performance results against these RA commitments is another project indicator. These results will be widely disseminated, not only on the Government’s website but also physically in government offices that service the public. Thus, Secretaries and agencies, and their staff, will have an additional incentive to take these instruments seriously.

86. Monitoring and evaluation will be enhanced by independent technical audits. In addition to the GDF systems, annual external technical audits will be undertaken to ensure that progress toward project indicators is on track. The GDF will contract an organization (from the private sector, university or international organization) with knowledge and experience on public sector reform, and reforms on education, health and transport sectors, to carry out these audits under terms of reference acceptable to the Bank.

D. Sustainability

87. The sustainability of the proposed project is rated high from the political, economic, social and programmatic perspectives, as follows:

There is strong support for this project in the GDF, which has strong implementation capacity. Macroeconomic prospects are generally favorable. On the microeconomic side, the activities that will be implemented by the project are expected to contribute to improvements in the governance and efficiency of the education, health and transport sectors, which in turn will contribute to the sustainability of reforms in these sectors and in the GDF in general. From a budgetary perspective, the project is sustainable. A $130 million loan over three years represents about 2% percent of the entire annual GDF budget. In the education sector, the annual targets are realistic; sustainability will also depend on the appropriateness of the design of the managerial information system, and incentives put in place for schools, teachers and students to perform. In the health sector, annual targets are realistic; the sustainability of the project will also depend on incentives put in place for the extension of Family Health teams in Administrative Regions, and for the OS that will manage the Hospital Sta. Maria. The sustainability of the transport activities under the project seems likely. The institutional reforms and organizational changes already carried out are clear signs of a strong engagement and ownership and have laid the foundations to improve public transport services. Nevertheless, much still depends on: (i) the continued ownership and priority given to this sector, (ii) the allocation of the necessary resources to re-establish

capacity and modernize operational practices and systems, and (iii) a strong stance of the GDF in the regulation of its relations with the bus operators.

E. Critical risks and possible controversial aspects

88. A new administration may be elected in 2010 that could change the trajectory of the reform movement. Elections for Governor of the DF are scheduled for October 2010, at a time when the project activities will be well underway. If a less reform-minded administration wins the election, progress may be slowed. However, since it is expected that the reforms will continue to produce positive results for the DF, and Brazil and the DF continue to experience a growing economy, if other states (Minas Gerais, Ceara) continue to achieve good results with public sector management reform, it is less likely that a new government in the DF would radically change course. Main project risks and mitigation measures are indicated in Table 4 below.

Main Project Risks Potential Risk Rating Mitigating Actions Rating of of Risk Risk GDF unable to proceed M A public sector reform movement is sweeping the most M with public sector reform innovative Brazilian states, and is supported by the federal program because of change government and the public. in Administration The GDF is very committed to the reform program, and through this project, the Bank will provide continued support to the GDF reform program. The GDF will brief the legislative branch and the opposition. GDF funds for the project L The request for the loan comes directly from the Governor. L do not materialize and/or The federal government (COFIEX) approved an initial Government does not project of $400 million, with a $130 million loan. Budget disburse funds due to low approval for the first year is required before project approval. priority Institutional reforms M Training in RBM will be provided for department staff and M leading to attainment of SEPLAG staff during project implementation. targets require time to be A participatory approach is used for strategic planning and institutionalized decision making on institutional and organizational changes. Incentives for departments and staff are being discussed. A communication strategy will be developed and implemented under the project. Lack of participation from M Communication and Participation strategy will be developed L key stakeholders (students, and implemented under the project. teachers, parents, patients, commuters, mayors, etc) Lack of coordination M SEPLAG has clear leardership of the reform program, and L between different sectors organizes regular meetings of sectors and partner and partners organizations involved. Possible lack of ownership M Same as above. M by senior officials and line staff in participating Secretariats

Delays in the M The GDF is committed to the reform program, and showing L implementation of the results in the short term. Some of the activities are already sector programs ongoing and most terms of reference will be ready before effectiveness. Sector programs not M The Governor authorized in September 2007 a public hiring L adequately staffed procedure (concurso publico) for new positions. Ambitious targets difficult M Targets were reviewed during pre-appraisal and appraisal to M to achieve in three years ensure that those included in the project are achievable during the implementation period. Slow disbursements due to M Targets are from the GDF development agenda and have L low achievement of agreed Government buy-in. The Bank will provide continued support results to the implementation of the GDF reform program. Indicators ambiguous L GDF is benchmarking indicators to confirm their feasibility L and protocols are being established for calculating each one. EEPs do not execute 70% M Project will build capacity to execute EEPs. The Bank will L of budget provide continued support to the implementation of the GDF reform program. Few non-profit M The GDF identified several possible candidates in the DF and L organization in the health in other states. sector that can be certified as OSS Delays and cost overruns in H As part of the preparation of this project, DFTRANS S the implementation of key prepared a detailed planning, time schedule and budget to systems in the transport carry out the technological modernization. The Bank team sector, such as the CCO will closely follow-up and monitor the compliance with the planning and schedule. Bus operators refuse to H The new regulatory framework provides the legal basis for M provide DFTRANS with the GDF to claim direct access to the operational and direct access to the financial data of the system. operational and financial A good legal team will be essential (the hiring of 4 lawyers data of the system for DFTRANS expected to take place in 2008). Different steps in reaching this control are treated as disbursement targets. Bus operators will object to H The law on the new regulatory framework for public transport M the installation of services requires operators to provide a data collection and technological devices for transmission subsystem as part of the automated fare real time control and/or collection system and the automated ticket readers in the supervision of bus location buses are suitable for the GPRS technology. Capacity strengthening S The project is supporting activities with a great potential to M efforts and the improve public transport services; however, again much will improvements in the depend on the political will to effectively confront the current management of the bus operators. The dialogue with the client during project transport sector will not implementation is expected to facilitate the achievement of lead to significant service the final result. quality enhancements Delays in procurement of M The GDF and Bank carried out an extensive review of M information systems for the procurement procedures, and improving procurement education, public transport performance and capacity will be object of investments under and health sectors both project components. Overall Project Risk M High (H), Substantial (S), Moderate (M), Low (L)

F. Loan/credit conditions and covenants

89. The following documents were sent to the Bank prior to Negotiations, and found satisfactory: Signed agreements with partner organizations (MBC and Education Foundations); Draft Operational Manual acceptable to the Bank.

IV. APPRAISAL SUMMARY

A. Economic and financial analyses (Annex 9)

90. The project will yield a net present value of benefits, after investment and recurrent costs, of more than US$1,500 million, and produce an internal rate of return (IRR) above 56 percent over a 10-year period. Total project costs do not represent more than 1 percent of total public expenditures over the life of the project after loan disbursements come to an end. The implementation of the project will not raise a fiscal issue for the government of the Federal District. The results were projected to 2031 to accurately reflect the full repayment of the loan. The trend of the public finances for the period of project implementation does not show any sign of deterioration and presents a continuing superavit, which will not change after disbursements and repayments of the loan are carried out.

B. Technical

91. There are significant technical challenges associated with the design and implementation of Results Agreements. These specific risks include: (i) the level of autonomy enjoyed by Secretariats and agencies may be insufficient to hold senior staff to account—i.e., there may still be too many things outside their control that provide a realistic defense for poor performance; (ii) similarly, RAs may not fully address the reality of very complex service delivery chains that may prevent even the most determined Secretariats and agencies from improving management arrangements at the front line; (iii) RAs may underestimate the degree of “gaming” of performance indicators; (iv) RAs may generate unrealistic expectations on the part of citizens; (v) in some settings the oversight and information requirements for RAs have become too cumbersome, generating a culture of antagonism between the center and line departments; and (vi) the significant time required to implement a new institutional culture.

92. The risk of “gaming” rises as the rewards (or punishments) associated with meeting RA targets increase. At present, with the exception of the education sector, legislature approval is still required in order to offer any RA-related financial rewards. The GDF has indicated that it is in no hurry to insert rewards into the RA framework largely due to concerns over the fiscal cost. The education sector will provide a critical first test case, and the details to implement the planned rewards in this sector will have to be considered very carefully.

93. There may also be significant technical challenges to construct the cost-accounting systems for the health and education sectors, particularly in configuring existing information systems (or building complementary ones) for reporting and collecting detailed data on costs and outputs at the level of individual service delivery units. The magnitude of this challenge can only

be specified clearly once the initial steps for developing these sector-specific cost accounting systems have begun.

94. The implementation of public-private partnerships in the health sector is expected to bring significant quality and efficiency gains, but present significant challenges as well. Te DF has fewer choices in OSS partners than the Government of São Paulo, where management of public hospitals by OSS was successfully implemented. However, GDF identified several possible candidates in the DF and in other states, and already selected and contracted one. The project will have to invest significantly in building capacity in the Health Secretariat to identify, select, contract, supervise and evaluate PPPs in the sector.

95. A number of hurdles must be overcome in order to implement the modern technological tools required by the transport system. Proven technologies for CCOs to control the compliance of bus operators with the operational programs and the direct access to data collected through the fare collection system in buses exist and are successfully used in many public transport systems in the world. Nevertheless, the implementation of a COO and other support technologies implies a number of challenges in terms of design and implementation. There is also a high risk of delays and cost overruns. Additionally, bus operators who have become accustomed to setting their own rules may resist such new technology because it permits effective control and facilitates enforcement. SEPLAG and the Bank will assist the transport agencies in the design of these systems and will closely monitor their implementation. The fact that the systems’ various implementation phases are linked to project disbursements is expected to be an incentive to expeditiously resolve the operators’ resistance.

C. Fiduciary (Annexes 7 and 8)

96. The GDF’s public financial management systems will be used, including the information technology, chart of accounts, reporting and auditing. The GDF has experience in implementing Bank-financed projects, including the ongoing Environmentally Sustainable Project (Brasília Sustentável), implemented by the Infrastructure and Civil Works Secretariat, as well as IADB-financed projects. However, the Brasília Sustentável project is a single sector, straight-forward project, while the proposed project involves the Planning and Management, Education, Health, and Transport Secretariats. While SEPLAG’s and the Secretariat of Finance’s (SEF) financial management capacity is strong, some aspects of the FM arrangements are still under development. Strengthening SEPLAG’s coordination capacity for project implementation, improving intra-secretariat coordination for increased efficiency in the planning, budgeting, monitoring and evaluation processes, IT systems’ integration, and the finalization of the GDF’s reform, started only in 2007.

97. The GDF has satisfactory financial management arrangements in place to meet the Bank’s minimum requirements. The financial management risk associated with the project has been assessed as moderate, due to limited previous experience of the GDF with Bank-financed projects, need for coordination improvement among all implementing entities, weak internal controls, and the use of multiple IT systems. The project’s financial management system will be able to provide relevant and reliable financial information for disbursement and monitoring purposes, in a timely manner, while weaknesses identified during project preparation and the PEFA assessment will be the object of an FM Action Plan – with implementation financed under

Component 2 – to improve project management and financial management, controls, planning, and implementation and monitoring.

98. The overall project risk for procurement is average. An assessment of the capacity of the implementing agencies to implement procurement for the project was carried out in February 2008. The capacity assessment concentrated on the Central Bidding Committee at the Planning Secretariat, where procurement of goods and services is centralized. It included organizational aspects, staff skills, quality and adequacy of supporting and control systems and suitability of the laws, rules and regulations applicable to the agency. No major works will be procured under the project. The key issues and risks concerning procurement for implementation of the project have been identified and a Procurement Action Plan agreed in order to mitigate these risks. Implementation of the Procurement Action Plan is a project monitoring indicator.

D. Social (Annexes 1 and 10)

99. The project does not involve any resettlement and indigenous safeguards will not be triggered. The proposed project will strengthen public sector policies and improve the efficiency and effectiveness of public expenditures, especially in the education, health and transport sectors. These investments will not cause any direct or irreversible impact on society or the environment.

100. The key recommendation arising from the social assessment is the incorporation of lower bureaucratic ranks and direct beneficiaries as subjects, rather than objects, of the reform program. This incorporation could be facilitated by the implementation of a robust and comprehensive communication and participation program. Most teachers are skeptical about government efforts, with some teachers showing clear antagonism. As teachers play the lead role in educating students, it is clear that their input and concerns should be heard and their support gained. Parents should be informed about all dimensions of the education strategy. When reform efforts are carefully explained, parents are usually relieved and supportive. In the health sector, the main challenge identified by the assessment is an overloaded health system, with poor access and low quality of response. The key recommendations align with those that the GDF is already implementing: management modernization with, as much as the law allows, partnership with the private sector in areas that are not meeting patient needs; a policy dialogue with the states of Goiás and Minas Gerais to ameliorate the demand within the DF from the citizens of the two bordering states; a user survey, to fine tune policies and goals; implementation of the Health card; and expansion of the Family Health. Transport in the DF is considered by those consulted as chaotic and expensive. Beneficiaries recommended (a) diminishing waiting time through higher trip frequencies in non peak hours, incentives to provide more stops, clear stop signs, and a greater number of routes that do not make the Rodoviária (Brasilia’s main bus terminal) a necessary stop point for connections; (b) implementing an integrated tariff system; and (c) designing transport corridors, similar to those that already exist in Curitiba and Bogotá, with incentives for public use, instead of private transportation.

E. Environment

101. The GDF has good capacity in what concerns safeguards and environmental assessment, and it already prepared an environmental action plan for the Brasília Sustentável Project. The construction activities that are envisioned in the health and education

sectors under the proposed project are all minor repairs to existing clinics and schools and are not anticipated to create any disturbances out of the ordinary. The GDF will include in the Operational Manual guidance to contractors on minimizing any environmental impacts (dust, noise, etc.). The project does not present any potential impacts that will be of environmental concern. In the health sector it will not support activities that generate health care waste. However, the GDF is aware of the current situation of health care waste, and is interested in undertaking strategic assessments in Federal District health care units. It is expected that this exercise will generate recommendations, which the GDF will implement. Waste segregation is recognized as being weak and the project will support capacity building and also provide an enabling environment for segregation to occur efficiently.

Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) [] [x] Natural Habitats (OP/BP 4.04) [ ] [x] Pest Management (OP 4.09) [ ] [x] Physical Cultural Resources (OP/BP 4.11) [ ] [x] Involuntary Resettlement (OP/BP 4.12) [ ] [x] Indigenous Peoples (OP/BP 4.10) [ ] [x] Forests (OP/BP 4.36) [ ] [x] Safety of Dams (OP/BP 4.37) [ ] [x] Projects in Disputed Areas (OP/BP 7.60) [ ] [x] Projects on International Waterways (OP/BP 7.50) [ ] [x]

F. Policy Exceptions and Readiness. No policy exceptions are envisaged.

Annex 1: Country and Sector or Program Background BRAZIL: FEDERAL DISTRICT MULTISECTOR PUBLIC MANAGEMENT PROJECT

1. From 1990 to 2000, the Federal District experienced changes in its demographic pattern and spatial organization. The population increased by 21.6%, and only between 2000 and 2007 acquired more than half a million residents, largely due to migration to the national capital. New administrative areas emerged from the reapportionment of existing areas and the formation of new ones to absorb the fast population growth. In the meantime, no significant improvement in services that are determinant to the quality of life was made, like education, health services and transport.

2. Below is a summary of the main issues in the areas covered by the project – PSM, Education, Health and Transport, including findings and recommendations of a social assessment that was carried out during project preparation to understand beneficiaries’ perceptions about the ongoing reforms. The social assessment was based on interviews with government staff in the areas of management, education, health and transport; school directors, teachers, supervisors, and parents; and physicians and health staff. Focus groups were organized with teachers, parents and students. Informants totaled about 50 individuals.

Public Sector Management

3. The GDF has initiated a profound results-oriented management reform, epitomized by the introduction of Strategic Plans and Results Agreements for line Secretariats and service delivery units. These tools are new to the GDF. International and Brazilian experience reveal that these tools can be powerful catalysts for improvement in public sector performance. However, they are neither simple nor trouble-free to implement.

4. In 2007 and 2008 the GDF defined 19 Strategic Projects14 with a new system for monthly monitoring and evaluation (M&E) of these Projects against their objectives and indicators. However, these Strategic Projects encompass only a small share of the key goals and services of the GDF Secretariats. To transform public culture and practices of public management throughout that wider set of government activities, SEPLAG began working in 2007 with each Secretariat and agency to develop Strategic Plans, including:

Development of mission statement and vision; Definition of “production chains” and strategic mapping of the organizational structure and production units; Development of goals and indicators; and Design of actions to reach goals.

14 Strategic Projects include: (1) Parque Tecnológico Capital Digital, (2) UNB nas Satélites, (3) Dentista na Escola, (4) Erradicação do Analfabetismo, (5) Escolas Técnicas, (6) Vilas Olímpicas, (7) Copa 2014, (8) Centro Administrativo, (9) Construção dos Parques Burle Marx e Taguaparque, (10) Postos Policiais Comunitários, (11) Setor Noroeste, (12) Regularização de Condomínios, (13) Pólos de Agricultura Orgânica, (14) Revitalizacão da Orla do Lago, (15) Cidade do Agronegócio, (16) Tendas Culturais, (17) Ciclovia, (18) Parceiros da Escola, (19) Renda Escolar.

5. Broad meetings conducted to devise these Strategic Plans had been completed for several Secretariats and agencies. The objectives and indicators established through these strategic planning exercises are then to be formally agreed as first-level Results Agreements (Termos de Compromisso de Resultados) between the Governor and the Secretariats and GDF agencies. Then, second-level Results Agreements are to be signed between the Secretary and the Heads of the subordinate production units responsible for contributing to the overall outputs/results of the Secretariat. So far, the Health Secretariat was the only one to have completed the sequence of Strategic Planning and Results Agreements, but Agreements for the Education and Transport Secretariats are in advanced stages of preparation.

6. Results Agreements (RAs) constitute a type of quasi-contract agreed between the Governor and sector Secretariats and agencies, setting targets for performance and demanding regular reports on progress toward their achievement. The process of monitoring and evaluating the RAs also provides important information to the public, the Congress and to the Secretariats themselves on the Government program and progress in its implementation. The goal is to introduce critical data into the policy-making process for resource allocations, and to strengthen incentives (e.g., reelection, professional advancement, financial rewards) for officials and public employees to shift their focus from inputs and processes to productive efficiency and results achieved for citizens. Still, there is considerable risk of formalism and superficiality in applying these tools, which can end up undermining the credibility of the reform and impeding a genuine transformation of the practices and culture of public management.

7. In the education sector, the Results Agreement anticipates that a bonus will be paid to all employees of a school that meets its performance targets for student education achievement. For the other sectors, creating such a financial reward first requires legislature approval. The draft law to establish this authority has been submitted to the DF legislative assembly and is under consideration by a legislative committee.

8. There are specific risks associated with the use of Results Agreements. These include: (i) the level of autonomy enjoyed by Secretariats may be insufficient to hold senior staff to account—i.e., there may still be too many things outside their control that provide a realistic defense for poor performance; (ii) similarly, RAs may not fully address the reality of very complex service delivery chains that may prevent even the most determined Secretariats from improving management arrangements at the front line; (iii) RAs may under-estimate the degree of “gaming” of performance indicators; (iv) RAs may generate unrealistic expectations by citizens; and (v) in some settings the oversight and information requirements for RAs have become too cumbersome, generating a culture of antagonism between the center and line departments.

9. The social and institutional assessments reviewed public sector management reforms with beneficiaries, and the program’s communication. The main beneficiaries of the RBM Program are not only the DF residents in general, who enjoy the benefit of a reliable and accountable administration, responsive to their wishes for change that were evident in the 2006 elections, but also DF taxpayers, who can count on a government that is putting the District’s fiscal house in order. SEPLAG is the key stakeholder, defining critical goals and processes of the RBM program and monitoring its implementation. The program’s objective is that new

government actions are carried out through ordered channels rather than by informal rumors. Therefore, government communication (both internal and external) has begun to show a high degree of specificity. The objective is that, little by little, all government actors and institutions will be linked in a systemic network comprised of goals and means – government will become rational and its procedures will become institutional, thus, predictable and stable. In current GDF discourse, speeches, pamphlets and websites, key words of this RBM model are “participation”, “mobilization”, “information”, “commitment” and “ownership”.

10. The assessment identified several challenges that the introduction of this new model of government (inclusive but rational) brings out, including:

The GDF does not yet possess a unified discourse and policy about the role of citizens, whether they are participants or whether they are objects of policies; moreover, neither does government possess a unified view of the role of the lower bureaucratic strata, whether they are participants or whether they are implementers of decisions from above. The presumption that the Results Agreements are understood the same way by all stakeholders is not often true. Government instructions, particularly those which are part of the Results Agreements, despite being very detailed, are sometimes cryptic or rely on a highly developed technical language, which is not always understood and/or shared by all stakeholders. SEPLAG staff tend to centralize decisions, perceiving their role as deriving from a winning electoral process, while sector secretariats tend to take into account during implementation the voices of those working in decentralized agencies/organizations as well as beneficiaries’ points of view. Sometimes these two methodologies collide. The GDF, in particular the management level of SEPLAG, presumes that those below have the same desire and motivations for change as they have. This assumption, however, has not been fully tested in reality. Describing their work, it is the lower level bureaucrats who interact with the sector managers and who will actually implement the reforms on a daily basis. With elections every four years, and without a class of professionalized public servants, support from those outside the bureaucratic system is critical for the sustainability of the reforms that the GDF is beginning to implement. Rationality tends to be a more fragile structure of government than the traditional forms of “clientelismo” and patronage.

11. The key recommendation arising from this analysis is the incorporation of lower bureaucratic ranks and direct beneficiaries as subjects, rather than objects, of the reform program. This incorporation could be facilitated by the implementation of a robust and comprehensive communications program. Historically, the process of professionalizing governments has occurred in conjunction with the concentration of administrative power in the hands of a few. Yet, the dissemination of democratic ideals is based on the presumption of juridical equality between bureaucratic strata and citizens. The best way to deal with this imbalance that simultaneously concentrates means and promotes rights is to maximize the incorporation of broad public opinion as a way of achieving stability in results.

Education

12. The DF is one of the three Brazilian states with the best student performance, as measured by the national student assessment tests (SAEB 2005 and Prova Brasil 2006). The DF’s IDEB score of 4.4 for the first four years of basic education is higher than the average IDEB for Brazil of 3.8. In grades 5-8 of basic education, the DF’s IDEB score of 3.3 is very close to the national average of 3.5. An exercise comparing PISA Science Results for 2006 across sub-national entities showed that the average score of 447 for the DF is far above the Brazil average of 390.15

Source: PISA 2006 Database

13. However, there are huge inter-and intra-regional inequalities in DF schools. Despite very high levels of public spending, and the good performance of the DF education system as a whole compared to national test results, the DF education system continues to experience huge inequalities in different Administrative Regions. While some schools in the central area of the DF have an IDEB of 6.4, schools in other areas of the DF present an IDEB of 1.6, nearly equal to some of the worst scores in the country. The 2005 SAEB showed that 50% of 4th grade students and 70% of 8th grade students did not achieve the minimum test score for their grade level. The four highest-scoring secondary schools in the DF received a score of about 40% in the 2005 ENEM, which is below the minimally acceptable score of 50%. All other secondary schools received even lower scores. Inter- and intra-regional inequities within the DF are a huge problem, as shown in the graph below.

15 SAEB: National Basic Education Evaluation System; IDEB: Basic Education Development Index; PISA: OECD Program for International Student Assessment; ENEM: National High School Examination.

Index of Development of Basic Education- Fundamental Education ( grades 1 to 4) Schools with the five best and five worst IDEB by Administrative Regions Federal District - 2005

7.0 6.1 6.1 6.0 5.9 5.9 6.0

5.0 IDEB (Distrito Federal) : 4.4

4.0

B IDEB (Brasil): 3.8 3.3 3.2 IDE 3.0 3.4 3.4 2.5

2.0

1.0

0.0 A U A EC 415EC NORTE EC 106 EC NORTE ARI A M FATIM LENCOL SENHORA EC 314 SUL EC EC 01 DE EC EC DO SM DO EC CEF NOSSA CEF 08 DE CEF 01 DE CAI C SANTA CEF QUEI M SOBRADI NHO SOBRADI NHO SOBRADI NHO Plano Piloto Sobradinho Plano Piloto Santa Maria Planaltina Sobradinho Fonte: MEC/Inep.

14. Existing Early Childhood Development (ECD) programs are insufficient to serve the DF’s low-income population. While in the central, urban areas of the District, there are vacancies for children ages 0-6, no spaces are available for this age population in the low-income areas. Less than 2% of the 0-3 age cohort is enrolled in ECD programs, and enrollment of children from low-income families is even lower. In 2005, only 610 children ages 0-3 attended one of nine day-care centers in the DF. More than 52,000 children ages 4-5 attended preschool facilities. But 30% of DF children ages 4-6 do not attend any type of preschool program at all.16

15. High repetition and drop out rates are also a large problem in the DF. Despite almost universal enrollment in basic education (grades 1 to 8), grade repetition and drop out rates are also very high. Quality has been declining, and focus is now on raising student performance levels. Age/grade distortion issues are worrisome: recent data show that 50% of the students enrolled in basic education are over-age, which is caused by late entrance in school and grade repetition.

16. Insufficient education opportunities for youth and young adults limit employment prospects. Many young adults, discouraged by the poor education opportunities and their failure to progress, leave school to enter the labor market. However, the DF labor market is becoming more sophisticated and requires more educated professionals. Young adults need to have programs that could better prepare them to participate in Brazil’s new economic environment. Vocational/technical programs need to be an essential part of the curriculum offered to youth and young adults who have left school. Measures to upgrade human capital should include both measures to improve the skills and abilities of the adult labor force through lifelong training and competency certification programs, as well as measures to improve the quality of the future labor force through investments in the population that is currently in school.

17. Precarious school infrastructure is a problem across the DF. A majority of DF schools have poor facilities, and need rehabilitation or replacement of furniture and equipment.

16 INEP, Censo Escolar 2005.

In some areas such as the Vila Estrutural, a very poor area of the DF, there are no schools to serve the school age population of that region. Students have to be bused to schools in different parts of the DF. This causes frequent absenteeism, and consequently high drop out rates.

18. The GDF Economic and Social Development Plan for the period 2007-2010 intends to make a deep transformation in the education sector. The GDF plans to modernize the education system by adopting performance-based management strategies. The Government’s main priorities are to provide basic education to all citizens and to improve basic skills of all graduates. The Arruda administration hopes to achieve these objectives by improving education quality so as to achieve better learning outcomes, developing innovative approaches to reach marginalized groups, and providing better educational opportunities to those students not progressing at the expected rate under the current system.

19. The GDF has signed the Commitment of All for Education Act (Compromisso Todos pela Educação), of which the central policy is the federal Plan for Education Development (Plano de Desenvolvimento da Educação - PDE). Thus, the GDF agreed to establish and implement a coordinated plan focused on schools with the lowest Index of Development of Basic Education (IDEB). By signing the State Integrated Action Plan (Plano de Ações Articuladas - PAR), the GDF also promised to implement innovative quality-enhancing policies that have already been successfully tested in other parts of Brazil. Mechanisms and instruments are being designed to identify problem issues at the school level and monitor school performance, which will permit the establishment of corrective measures to diminish the huge inequities of the education system.

20. The GDF has made education one of its highest priorities. Based on the education data, the GDF has prepared an ambitious agenda for the sector. The Government proposes to change the education paradigm in the DF to boost the quality of education in all levels of schooling. The GDF realized that to achieve the education objectives, traditional school management models needed to be changed. Thus the Gestao Compartilhada program was designed, negotiated with the Unions and approved in late 2007. This model will be applied in all public schools of the DF and includes: the replacement of politically appointed school principals by a three-step selection process that includes a review of professional qualifications, a test on practical knowledge of school management, and a presentation to the school community of a proposal to improve school performance. While administrative autonomy is supposed to increase under the new model, mechanisms and instruments have been developed to monitor and evaluate schools, teachers and students’ performance. Those mechanisms are expected to support improvements in IDEB scores, and consequently reduce the huge inequalities presented by the DF in the provision of education services.

21. GDF education programs are focused on reducing inequities throughout the DF. The GDF plans to implement the Full-Time Schools program (Escola de Tempo Integral) in schools located in low-income areas. These programs feature longer school hours than normal, that provide better teaching-learning opportunities. Additional pedagogical, cultural and sports activities will be provided by full-time schools, which will improve students’ social skills and knowledge, and at the same time contribute to decreasing violence in schools and communities.

22. Overall, there is a sense among students, directors, education administrators, supervisors, parents and some teachers that education has became an important policy for the GDF, which is paying attention and making efforts to improve services. The social assessment interviews and focus groups indicate broad consensus about education as a priority sector, but school staff seem to be very weakly supporting the reform program, despite their participation in the principals’ election. Teachers do not currently see themselves as beneficiaries of the education reform program. Key stakeholders are SEPLAG, which defines and monitor goals, the Education Secretariat, regional administrators, principals, teachers and their union, parents and students. There are three types of beneficiaries: the first, parents and students; the second, educational administrative staff, including regional; and finally, school based stakeholders, particularly principals.

23. Many challenges persist for the Government in the strategy it has proposed for the education sector:

While the GDF places a priority on lengthening the school day, conducting elections for principals, address the age/grade distortion and decentralizing school management, the majority of stakeholders consulted placed the highest priority on expanding early education opportunities, and consider that the Government pays insufficient attention to this issue. Some who currently work in the education sector refer that decisions about education priorities were taken without their participation. Particularly in Brasilia (Plano Piloto), parents and teachers are skeptical about the benefits of increasing the length of the school day. Teachers believe there is a lack of physical infrastructure and human resources, and fear that the GDF will hire unqualified personnel to fill the gap. Many parents do not fully understand the GDF proposal, and wonder if they and their children will be forced to make multiple daily trips to and from school. The parents do not have a clear understanding of the educational benefits of spending more time at school every day. Those who support the full-time school program – principals – do not know how to deal with the lack of infrastructure but think that this is a government issue. In turn, government officials think this is a school issue as school administration has been decentralized. In general, students like school despite feeling a certain gap between teaching methodology and what is available outside the school in terms of technology and culture terms: cell phones, computers, TV, etc.

24. Two key recommendations for the education sector arise from the social assessment. Most teachers are skeptical about government efforts, with some teachers showing clear antagonism. As teachers play a leading role in educating students, their input and concerns should be heard and their support gained. The teachers’ union makes the task more difficult. However, the only way to counteract the influence of the union is to convince teachers of the benefits of the reform program. Parents should be informed about all dimensions of the education strategy. When reform efforts are carefully explained, parents are usually relieved and supportive. Currently, however, few are fully informed.

Health

25. In the next 15 years Brazil will pass through a critical phase in health. Demand for health care will grow and change, putting upward pressure on public and household spending. Managing this transition at an acceptable cost will require addressing four key challenges: (i) poor outcomes for resources spent due to low efficiency in public spending, low quality of care and lack of performance orientation; (ii) health costs, which could rise from current 7.6% to 12% of GDP; (iii) need to retool the health system for fast growth of non- communicable diseases (NCDs); and (iv) fragmentation and inefficiencies in private health insurance markets. The proposed project will tackle issues of health care quality, efficiency and performance; and contribute to reorient the system to tackle NCDs.

26. The DF’s health system faces the challenges of high disease rates, and low-quality and inefficient services. The DF has an extensive and complex public healthcare system, distributed throughout the capital and Administrative Regions, which consists of Family Health units, health centers and hospitals, organized hierarchically. The DF’s Health Secretariat manages the National Health Service (Sistema Único de Saúde - SUS) and its public health network in the DF, which is divided among 7 regions, listed here with approximate population: North (350,000), Center-North (200,000), Center-South (365,000), South (250,000), West (400,000), East (150,000), and Southeast (500,000). In addition, the DF responds to significant demand from the Entorno (a region which includes areas from neighboring states), which contributes to further overload the referral system and health facilities.

27. In a context of population growth and double burden of disease17, limited primary health care (PHC) coverage and intensive use of hospitals for basic health care, aggregate medical visits in the DF increased 36% from 2000 to 2006. Coverage is not adequate for the DF’s fast-growing population. Currently the health system serves about 7 million people every year, while the population of the DF is only 2.5 million. The DF’s health system was designed for a much smaller population, and the DF is not compensated by the neighboring states for responding to part of their citizens’ demand for health care. The current number of hospital beds in the DF (approximately 5,000) is low by actual patterns of use and OECD practices, and the existing beds are not adequately distributed according to population size and health needs in the Administrative Regions. However, the existing number of beds is sufficient if efficiency increases18 and distribution improves, and if demand from neighboring states decreases.

28. The GDF has engaged in a comprehensive health sector reform program with three primary goals: (i) to decentralize health care from Brasilia to the Administrative Regions; (ii) to modernize the sector, making it more responsive to demand, by focusing on expanding primary health care throughout the region through PSF, and improving the quality of care and efficiency at all levels of the system; and (iii) to ‘wire’ the health system, by establishing an electronic

17 Double burden of disease refers to the situation facing some developing countries when they are still battling common infectious diseases such as HIV/AIDS or malaria, as well as chronic diseases more commonly found among populations that live longer and are more well off economically, such as cardiovascular disease or diabetes. 18 If the average-length-of stay (ALOS) in hospital decreases to 4 days, hospital occupancy rates increase to 85%, and ambulatory surgery increases significantly, 80-100 beds will be required per 100,000, or 2,500-5,600 beds for 3.2- 7 million population.

network linking all levels of the system, which the health system users will access through their health cards.

29. The GDF’s Health Secretariat (SES) was the first to sign a primary Results Agreements with the Governor and subordinate RAs with health units in January 2008. This agreement includes targets to improve inputs, processes, outputs and outcomes of the DF health system. The Health RA divides targets into social, user-related, internal processes and learning & development targets. Social targets refer to increasing access to PHC through PSF, improving quality and reducing inequalities; user-related targets refer to reduction of main causes of burden of disease; internal processes targets include improvements in information management and accountability, and in the co-ordination and integration of the DF public health network, and innovation; finally, learning and development targets include staff development- related targets. Each target is measured by one or more indicators, and has baseline and target values identified. The GDF health team was advised to decrease the number of targets included in the RA in subsequent years, and focus more on priority areas such as non-communicable diseases, quality of care and quality of spending.

30. One of the challenges that the reform program faces is the insufficient coverage by primary health care. Traditional primary health care (Atenção Básica) covers about 40% of the DF population. To extend and modernize primary health, and decrease the pressure on hospital care, the GDF has started to implement the Family Health Program in Administrative Regions, but in 2007 it covered only 7% of the population. Under the DF reform program, the Arruda administration expects that the capacity of PSF services will increase, reducing the pressure on emergency services and hospitals; and more efficiently allocating resources.

31. The Family Health Program (PSF) has been the Brazil health sector’s flagship program and main strategy for extending modern primary care throughout the country. PSF seeks to implement three essential attributes of primary health care: first point of access, continuity of care, and coordination with the health system. The program focuses primarily on maternal and child health and the prevention and early treatment of a few non communicable diseases (NCDs) such as hypertension and diabetes. Each PSF team is responsible for enrolling a given number of families (between 600 and 1,000; 3,500 individuals on average) within a defined catchment area, and monitoring their health status, risks and needs. The Government has set a national target of 50 percent coverage by 2008, having achieved 46 percent in 2006.

32. Recent research suggests that PSF is associated with improved health results: (i) a 10 percent increase in state-wide PSF coverage was associated with a 4.6 percent decrease in infant mortality controlling for other health determinants; (ii) higher levels of PSF coverage at the municipal level are associated with decreases in infant mortality, higher immunization rates and pre-natal coverage and a reduction in hospital admissions; (iii) higher municipal coverage is associated with lower admission rates for preventable diseases in children; (iv) PSF facilities outperformed traditional ones in terms of service production, population utilization, supply of preventive activities, and parents’ reports on health status of infants; (v) PSF services were rated significantly superior in terms of access to vaccination coverage, hospital maternity care, drug

access, home visits and patient satisfaction; and (vi) inpatient treatment of stroke decreased in municipalities with high PSF coverage from 52/10,000 to 38/10,000.19

33. Improved information technology systems are an important focus of the health reform program. The DF health system is in the process of establishing electronic records and clinical and management information systems. The implementation of the Program of Technology Modernization of Health Units (PMTUAS) is being piloted in the administrative region of Gama with the implementation of an integrated health information system with 24 modules. The implementation of the Citizen Health Card is also being piloted in the Gama region. The new technology network, once fully implemented, will contribute to increased health system effectiveness by allowing the GDF to more efficiently manage patients, distribute medications, process laboratory and imaging exams; oversee hospital bed usage and invoicing; and regulate the health care system.

34. The health sector received very poor evaluations in the social assessment, with the opinion frequently expressed among those consulted that health services are “chaotic”. Interviewees articulated three main concerns. First, those interviewed were unhappy with the lack of access to services, particularly the difficulty in getting appointments to more specialized services. There is a long waiting time for appointments to be scheduled and, when they are scheduled, the medical professionals frequently do not show up. Second, interviewees felt that the GDF has to deal with two different groups of patients: the DF citizens to whom the Government is accountable; and those patients who overload the system but do not reside in the DF, coming from the neighboring states of Minas Gerais and Goiás. The GDF is looking for solutions for patients who are technically outside the system, and who should be seeking service from within their own states of residence. However, this is a difficult challenge as current SUS regulations technically grant such patients the right to access the DF health system. The third concern was the law that does not allow salary differentiation among public sector professionals based on level of specialization or patient demand. For example, there is lack of anesthesiologists in the public health system as many prefer working in the private sector, where salaries are higher. This lack of professionals can overload the system and delay surgery even when it is urgent.

35. The main challenges identified by the assessment are an overloaded health system, with poor access and low quality of response. The key recommendations align with those that the GDF is already implementing: first, the expansion of PSF as a means to decrease preventable demand for emergency services. Second, the implementation of the QUALISUS mechanism, which will facilitate the availability of mid-complexity quality interventions. Third, the implementation of the health card (Cartão de Saúde), which will make the health system more manageable, expand the availability of services as time will be saved, and supply and demand will be easier to balance. Fourth, management modernization with, as much as the law allows, partnership with the private sector in areas that are not meeting patient needs. Fifth, a policy dialogue with the states of Goiás and Minas Gerais to ameliorate the demand within the DF from the citizens of the two bordering states. Finally, the implementation of a periodic user survey to fine tune policies and goals.

19 Macinko et al 2006; de Carvalho 2005; Sales and Gentile 1998; de Carvalho 2005; Facchini et al 2006; Escorel 2002; Mendes et al 2004; de Carvalho 2005.

Transport

36. Public transport services are provided by bus, subway and taxi, but there is no integration between bus services and the subway system. Public transport services are distinguished between basic services provided by conventional buses, microbuses and the subway and complementary services provided for specific user groups. The subway links Brasilia with Samambaia and Taguatinga/Ceilândia (42 km) and has been operating commercially since 2001. The system is not integrated.

37. Public transport services are expensive and inefficient. The average daily commuting fare is R$6.22 (US$3.70), which is very high considering that 70% of the users earn less than R$1,900 per month (about US$1,000). Given the long trip length, many buses operate only during morning and evening peaks and stand idle the rest of the day. The productivity of bus transport is low, with 0.92 passengers per vehicle km, compared to a national average of 1.71 and an average for metropolitan buses of 1.21. The bus system is financially self-sustainable, while the subway system is subsidized. In 2006 and 2007, the subway received operating subsidies of R$ 165 million and R$ 163 million, respectively. The subsidies for 2008 are projected at R$120 million and the financial balance is expected in 2010. Although in 2007 the weekday ridership doubled from 50,000 to 100,000 passengers, and in 2008 it reached 140,000 passengers with the opening of new stations, this figure is still low for a subway system. The main constraint is the limited number of trains (the acquisition of 10 new trains is planned) and the limitations of the control and signaling system. Once these issues are solved, a strong boost in ridership is expected from the integration with the bus system.

38. The main institutional responsibilities for the provision of public bus transport services lie with the SET and DFTRANS. The SET is responsible for transport policy definition, including fare policies, transport infrastructure planning, and permission/concession awarding for services delivery and the infrastructure operation. DFTRANS is the urban transport agency in charge of planning, managing, controlling and inspecting the public transport services provided by private bus operators, except for one small public company. The SET is supported by the Public Transport Council (CTPC/DF), which is a deliberative body composed of public transport related entities and civil society representatives. It decides on public transport related matters that are not directly attributed to the Governor or the Transport Secretary. This includes operational, institutional, financial, fare, administrative and planning issues. The Council meets at least once a month.

39. The public transport institutions are extremely weak. Between the late 1980s and 2006 many changes took place in the public transport regulatory environment of the DF, which resulted in an often contradictory, fragmented, and partially outdated legal and regulatory framework for the sector. During the same period, the role of the public sector in the management and supervision of public transport services strongly weakened, with the SET taking over most the operational responsibilities of DFTRANS. This left DFTRANS with a fragile structure (only about 30% of its staff of 230 people are public officials, about 40% are seconded from other organizations, and the rest works on the basis of temporary/political assignments), insufficient technical staff (only 38% of the staff have higher education and their degrees are mostly unrelated to transport), and limited resources and capabilities. It also

undermined the regulatory and policy making capacities of the SET, who has similar problems in terms of staffing and lack of analytic tools and technical studies. For instance, the previous urban transport master plan, which constitutes the basis for the definition of sector policies and the determination of transport investments, dated from 1979. Additionally, both entities suffer from outdated processes, procedures and systems.

40. DFTRANS is unable to efficiently and effectively plan, manage and supervise the provision of public transport services. DFTRANS has no systematic approach to service planning and the definition of operational programs is based on suggestions by bus operators or sometimes by users. The data used for planning purposes is mostly supplied by the operators and DFTRANS’ planning department carries out very few field visits. Similarly, the determination of the fare levels, and hence the compensation of operators, is based on data supplied by the operators, and DFTRANS does not have the means to check the reliability and accurateness of this data. Finally, the control of the compliance of the private operators with the operational programs for public transport provision and their other obligations is purely manual, and DFTRANS has only 74 inspectors for compliance control and the fight against illegal transport. This is an insufficient number considering that there are 24 public transport terminals and each of them needs at least three (but in most cases many more) inspectors to simply check the departure times of buses (at least until GPS locating devices are installed on the buses). To make matters worse, despite the fact that the existing inspectors do detect about 1,000 irregularities a month, sanctions have never been widely applied due to weaknesses in legislation and a lenient attitude of management. Therefore, the operators were usually not held responsible for schedule irregularities. Since the end of 2007 the situation has begun to change, as DFTRANS is currently completing the sanctioning process, even though there is still a huge backlog to catch up with. Introduction of a robust sanctioning system has not yet induced the operators to pay their existing fines; nevertheless, the debt for unpaid fines is now registered in DFTRANS books and it is up to the Finance Secretariat to undertake the additional legal steps to hold the operators responsible.

41. The bus operators are controlling the provision of public transport services and many users consider system quality to be “very bad” or “bad”. As a consequence of the management gaps described above, the bus operators, most of them with expired operating licenses (permissions), took over the management of service provision. They began practicing under their own rules and deciding on their own operational programs. DFTRANS also lost control over the operational and financial data of the system, which is currently in the hands of the operators. According to the user survey carried out in 200720, 45% of the interviewees considered the overall quality of bus services in the DF as bad or very bad. The average walking time to a bus stop is about 8 minutes (approximately 400 m), which means a relatively good network coverage; nevertheless, off-peak frequencies are very limited (in many places only twice an hour), and travel times (on average 50 minutes for each trip) and waiting times are long (68% of the interviewees wait more than 15 minutes for a bus). The latter is an indication of limited compliance with scheduled departure times by operator since about 80% of the passengers are daily users (hence it can be assumed that they know when buses are expected to depart) and most of them board at the origin of bus routes (so delays are not due to traffic congestion). This conclusion is also confirmed by the fact that of the approximately 14,000 complaints that

20 GDF 2007. Pesquisa de Satisfação do Usuário do Transporte Público do Distrito Federal May-June 2007.

DFTRANS received in 2007, the majority was related to non-compliance with scheduled times and itineraries. Other aspects of bus services that were evaluated as negative are the conditions of the vehicles (cleanliness, maintenance, etc.), crowdedness, bus infrastructure, such as stops and terminals, and security in buses and at stops. The average age of buses is currently 9.5 years.

42. The Arruda administration has launched an ambitious and comprehensive program to improve mobility and public transport services in the DF (Brasília Integrada), which establishes the guiding principles for transport interventions in the DF, such as prioritization of public transport and non-motorized transport interventions, integration between the different public transport modes, and coordination between land use and transport policies. The main initiatives and investments include: (i) the preparation of the urban transport master plan (PDTU)21; (ii) the Urban Transport Program to modernize the public bus system and foster integration; (iii) the subway extension and construction of additional stations; (iv) the bus fleet renewal; (v) the implementation of a light rail system; (vi) the implementation of a Bus Rapid Transit (BRT) system connecting Gama and Santa Maria with the center of Brasilia; and (vii) road improvements.

43. Additionally, a number of important reforms and changes in the sector have already started. All transport related independent entities are now under the control of the SET. DETRAN/DF (previously under the control of the Secretariat of Public Security) were put under the control of the SET. DFTRANS was reestablished as an autonomous entity (also under the control of SET). The latter also decentralized its operational tasks in terms of public transport provision to DFTRANS, and new statutes were approved for DFTRANS and the SET. A law with the new regulatory framework for public transport services was approved, including provisions, among others, on the integrated public transport system, fare policy, automated fare collection, clearing functions, the public transport fund22, and enforcement. Automated fare collection equipment was installed in all buses and the subway and some user groups already use the smart card as means of payment. Studies to support the introduction of an integrated fare are under preparation.

44. New buses are expected to enter into service as two competitive biddings, one for the operation of 450 microbuses and one for the operation of 160 regular buses, were concluded in the beginning of 2008. The bidding for the remaining buses is expected to take place as soon as the construction of the new busway infrastructure is underway and the new bus network is designed because both will determine the total number and type of buses required. This should not be later than by the end of 2010 since all provisional and expired operating licenses, as well as those without deadline, have to be re-bid by law by such date. The DF

21 The plan will provide the technical basis for the SET’s future transport policy and investment decisions in the short, medium and long run. The innovative aspects of this plan are the inclusion in its scope of the communities in the neighboring States, which heavily depend on the DF, and the great focus on citizens’ participation. 22 The public transport fund has to be used for interventions specified by law, including the improvement of the public transport system, the control of operations, costs related to issuing and managing the “Vale Transporte” and gratuities, and the promotion of the financial equilibrium of the public transport system. The money comes from the DF’s general budget and from DFTRANS’ own resources, such as the payments made by bus operators for the award of operating licenses, revenues from publicity, fines, possible fare revenues not needed to cover operating costs, etc.

banned the use of vans for the provision of public transport services (and replaced them with minibuses) and has been fighting effectively against illegal transport through strong supervision.

45. Technology will help DFTRANS regain control of the transport system. To regain control over the operation of public transport services in the future and ensure that operators comply with the operational programs and their other obligations, a Control Center for Operations (CCO) will be installed within DFTRANS, and all buses will be equipped with a positioning system, such as GPS, to control their location in real time. In a later stage, the CCO could be used to support fleet management or be connected with the operations of DETRAN, the entity in charge for traffic management, and possibly with other stakeholders. Among the other modernization projects is the implementation of an integrated transport database to store and manage the data from the ticket validators, the positioning system and DFTRANS’ other databases and systems. This will facilitate planning, fare determination, and control/enforcement.

46. Respondents to the social assessment considered transport in the DF chaotic and expensive, confirming the results of the User Satisfaction Survey carried out in 2007. The main challenge the GDF needs to face is the high price the poor pay for a poorly managed sector. According to the Associação Nacional de Empresas de Transportes Urbanos (NTU), an association that defends the interest of bus operators, those who use public transportation spend about 12 percent of their income on transport, a percentage that can reach one third of their income for those earning minimum wages. Long waiting times for public transportation add to their daily burden, and in response many have turned to illegal and unsafe transportation options that fill the gap. The second challenge is to reduce the use of cars in Brasilia. Most jobs are in Brasilia, but the city’s original design planned for a much smaller population and thus the city has inadequate streets and thoroughfares for the number of cars in use. With the recent expansion of consumer credit, car use has increased in the DF, adding to the time spent in traffic, air pollution and chaotic traffic patterns, particularly in peak hours. Beneficiaries recommended (i) diminishing waiting time and providing more stops, clear stop signs, buses in non peak hours and a greater number of routes that do not make the Rodoviária, Brasilia’s main bus terminal, a necessary stop point for connections; (ii) implementing an integrated tariff system; and (c) designing transport corridors, similar to those that exist in Curitiba and Bogotá, with incentives for public use, instead of private transportation.

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies BRAZIL: FEDERAL DISTRICT MULTISECTOR PUBLIC MANAGEMENT PROJECT

Bank-Financed Projects

Project name Project Amount OED/IP/DO Sector issue Status number (mil. Ratings USD) BR-Brasilia P089440 57.6 IP-MS Water, sanitation and Active Environmentally DO-MS flood protection Sustainable Project

Fundescola IIIA P057653 160.0 IP-S Education Active DO-S VIGISUS II P083013 100.0 IP-S Health, Nutrition and Active DO-S Population AIDS-SUS P113540 66.00 NA Health, Nutrition and Identification Population Family Health II P095626 83.45 NA Health, Nutrition and Approved by the Population Board QUALISUS- P088716 235 NA Health, Nutrition and Approved by the REDE Population Board Bolsa Familia 1 P087713 572.2 IP-S Social Protection Active DO-S HD Technical P082523 8.0 IP-MS Multisectoral Active Assistance DO-MS Education, health and social protection

Projects Financed by other Agencies

Project Name Amount Financier Sector/issue Status (USD mil.) Improvement of Public 16.3 MLW Higher Education Active Universities Facilities Urban Transport Program 176 IADB Urban Transport Active for the Federal District (BR-L1018)

Project Partnerships

1. A partnership is being established between the GDF, Competitive Brazil Movement (Movimento Brasil Competitivo, MBC23) and the Bank. The GDF will coordinate inputs from the MBC-financed contract with the Management Development Institute (Instituto de Desenvolvimento Gerencial – INDG) (R$2.4 million) to identify and implement cost reductions in the education and health sectors. MBC signed a cooperation agreement in March 2007 to assist the GDF implementing its Programa Modernizando a Gestão Publica, including the specific goal to optimize the use of public funds in the education and health sectors. Within this framework, the MBC will contract the INDG for a project to improve the quality of expenditures in these two sectors. These are the first two priority sectors where the GDF is committed to developing cost-accounting systems to improve the efficiency of public expenditures.

2. The design and implementation of cost-accounting systems in the education and health sectors requires three key steps: (i) detailed analysis of available data on the costs of key outputs in the sectors, by production unit; (ii) identification of additional data that will be required for a detailed cost-accounting system by output and production unit, as well as operational responsibilities (i.e., system design, excluding IT); and (iii) development and implementation of an information and reporting system to collect and store the data, and facilitate analysis (building on existing information systems in the sectors and at the center of government). In the planned division of labor for this activity, the INDG contract will provide the critical data for the detailed analysis. Under Component 2, project technical assistance will support steps (ii) and (iii) in both education and health. In practice, there are likely to be challenges to the smooth implementation of this planned division of labor. This activity will require significant managerial attention by both SEPLAG and the Bank to make adjustments as needed.

3. Another partnership is being established between the GDF and the IADB PNAGE, which relates, although it does not overlap, with the proposed project. The PNAGE program with the GDF is for a total of R$10 million (about US$6 million), with R$3 million or about US$1.8 million from GDF resources as counterpart funding. PNAGE focuses on strengthening public policy planning and management capacity, improving human resource management and modernizing organizational structures and administrative processes. In addition, PNAGE promotes administrative transparency and social communication mechanisms as well as more modern information management and the integration of information technology systems to help promote and implement a culture of institutional change.

23 A non-profit organization certified as an OSCIP (Organização da Sociedade Civil de Interesse Público).

Brazil State SWAp Projects

4. In addition to the DF, the Bank is supporting results-based management reforms through SWAp projects in several states in Brazil. The Ceará and Minas Gerais SWAps – and now the GDF SWAp – each target the Government’s priority sectors, which naturally differ somewhat from one loan to the other. However, what each of these operations share in common is a focus on cross-cutting management modernization to support a government-wide performance orientation that is not limited to the priority sectors identified in the Eligible Expenditure Programs. In this way, the state-level SWAps in Brazil are supporting a cultural transformation of government practice and accountability to the public.

5. The first Bank loan in Brazil to use a SWAp modality to support a multi-sector program was the Ceará Multi-Sector Social Inclusion Project. The Bank reimbursed key Eligible Expenditure Programs in line with results based on key sectoral indicators. The experience with this state-level SWAp has been highly positive, and the inherent flexibility of this loan modality has meant that other state governments have found it is a relatively simple matter to craft the content of a multi-sector SWAp to suit their specific needs, priorities and capacities. The recently-approved Second Minas Gerais Development Partnership Project links disbursements to demanding results targets for the government programs included in the SWAp design, in keeping with the state government’s cutting-edge advances in public management. The Second Ceará Inclusive Growth Project relies on process and output indicators in linking disbursements to government performance.

6. Ceará Multi-Sector Social Inclusion Project. Some key lessons from the first project are as follows:

It led to significant advances in management for results, by encouraging the sectors to identify the key results they were aiming for; It strengthened systems of financial management; The project reinforced an inter-sectoral policy model for management of projects; The agility and predictability of disbursements allowed for more effective use of resources; It highlighted the importance of sound implementation arrangements

7. Ceará SWAp II on Inclusive Growth. A follow on US$2.5 billion program, financed by a $240 million Investment Loan using the SWAP modality, will support implementation of the Government’s program to expand and consolidate the social advances and institutional modernization of the State of Ceará. The project development objectives are to: (i) help the Government of Ceará to improve its fiscal situation; (ii) strengthen the state’s system of results- based management; (ii) promote better service quality in education (particularly early-childhood literacy) and health; (iii) improve access to water supply & sanitation services, increase cost recovery in the water sector, and improve the efficiency of the two government autarchies with responsibility for water supply and management; and (iv) reduce barriers to business investment. The Project was presented to the Board in September 2008.

8. Minas Gerais Development Partnership II Project. A US$6.6 billion program, financed by a US$888 million Investment Loan following the SWAP modality, will support the Government of Minas Gerais in its efforts to implement the “State for Results” program. This program aims to improve quality and efficiency in the delivery of public goods and services, reinforcing the fiscal and macroeconomic advances made through previous reforms. The overall objective is to promote economic growth and poverty reduction. The specific project objectives are to help the Government of Minas Gerais to: (i) improve the efficiency of public resource use (getting more out of each Real spent) and the effectiveness of public resource allocation; (ii) adopt innovations in public management of the State; and (iii) strengthen the system of monitoring and evaluation of results. The project was approved by the Board on May 1, 2008.

9. Pernambuco SWAP: Improving Quality and Efficiency of Education and Public Management. A US$605 million program, financed by a US$154 million loan, will support the State of Pernambuco Education and Public Management reform program. The development objectives of the project are to improve: (i) the quality, efficiency and equity of public education; and (ii) the efficiency in the use of government’s public resources through the introduction of results-based management and the strengthening of fiduciary processes. These objectives represent a continuation and deepening of the EDUQ Project. The development objectives will be monitored in accordance with 12 disbursement-linked indicators, global indicators and non- conditional indicators. The Pernambuco project will be submitted to the Board in 2009.

Federal Health Programs implemented in the GDF

10. The GDF has benefitted from Bank-financed federal health programs on surveillance, family health and prevention and control of HIV/AIDS. VIGISUS addresses vital statistics, and epidemiological and analytical issues that are the informational backbone of every secretariat in the Ministry of Health (MOH), as well as for the states and municipalities. It also works with on indigenous health. The Family Health Program (PSF) focuses primarily on maternal and child health and the prevention and early treatment of a few non communicable diseases (NCDs) such as hypertension and diabetes. The proposed QUALISUS-REDE project focuses on improvement of regional health care networks, linking primary health care to secondary and tertiary health care levels. The proposed project will complement activities from those federal programs, especially from the Family Health Program.

BRAZIL STATE SWAp PROJECTS

MINAS GERAIS CEARA PERNAMBUCO DISTRITO FEDERAL SECTORS COVERED BY PROJECT Quality and Innovation in PSM Fiscal performance, RBM Education Public sector management Fiscal Quality Education, Health Public Sector Management Health Innovation, Technology and Quality WS&S and Water Management Education Health, Education /Youth, Transport Business Environment & Innovation Transport Environmental and Social Quality NUMBER OF DISBURSEMENT-LINKED INDICATORS 24 14 12 12 FISCAL PERFORMANCE Primary surplus and the ratio of Borrower’s current fiscal balance has Compliance with PAF as measured by personnel expenditures to net current reached R$ 1,293 million in 2011 (i) ratio financial debt/real net income revenue have reached values defined and (ii) expenditures on personnel. under the PAF Resources allocated to Strategic The Hefirndahl Index for ICMS Projects divided by total annual collection using 4 sectors and others budget expenditures (x100) = 9.5% in will not exceed 0.35 from 2008 to 2010 2012 PUBLIC SECTOR MANAGEMENT Six Line Secretariats reach 70% of Number of Line Secretariats with Development and implementation of a 26 Secretariats and agencies sign performance under their Results validated/posted annual performance Strategic Plan for the education annual performance agreements Agreements by 2010 reports = 15 in 2011 sector, identifying priority activities defining performance targets and a hierarchy of management indicators and then incorporated into the budget cycle. Number of certified job categories Number of Output-Result Reports Development and implementation of 21 Secretariats and agencies issue under the public service system = 8 in validated / posted by COGERF = 7 in an Action Plan for strengthening of annual performance reports 2010 2011 financial management, resulting from the application of PEFA

Bank has received, as evidenced by Implementation of Procurement EpR: Reform program OECD/DAC-- in 2008 a sample pilot survey and a Development and implementation of pilot quality assurance survey; an Action Plan for the strengthening in 2009, evidence that three impact of procurement, resulting from the evaluation surveys have been application of the OECD Indicators launched; diagnostic

MINAS GERAIS CEARA PERNAMBUCO DISTRITO FEDERAL in 2010, the first version of the three impact evaluation reports, in form and substance satisfactory to the Bank.

Systems for procurement management are improved BUSINESS ENVIRONMENT, TECHNOLOGY & INNOVATION Successful integration of Minas Facil Total urban population living in with the Cadastro Sincronizado in municipal centers w/ access to 2008 and reduce the number of broadband internet service has Registration Days for Minas Facil to reached 4,365,700 in 2011 10 in 2010. In 2010, the number of Registration Days will be accounted for in all the operational physical units for Minas Facil Increase # of operational physical % of business registrations in CGF units for Minas Facil to 27 in 2010 completed w/in 72 hours = 35% in 2011 Increase the number of contracted PPPs and/or published proposals for PPPs for the provision of public interest services to 3 executed contracts in 2010 Increase the number of operational NITs to 13 in 2010. EDUCATION The percentage of 8-year-old students External exam results for 2nd, 5th, 9th Number of schools meeting basic Increase access to early childhood in public schools with expected & 12th grades have been processed standards reaches 221 by 2012. program in low-income reading level in the third year of and publicly reported, along with a Administrative Regions for children elementary school between 85 and report of best practices, for at least aged 4-5 by approx. 13% 100% in 2010 90% of schools A standardized information and % of municipalities following agreed % of students in the state system Implement full-time basic education costing system per student is steps re child literacy program = at certified as literate at the end of the activities (Educacao de tempo implemented following agreed steps least 80% of schools in 2011. first cycle reaches 70% by 2011. integral) in 100 schools

A standardized evaluation and Number of over-age illiterate students Decrease the number of overage feedback system for student in the state system, in the early years students in grades 1-9 assessment in Portuguese and in math of Fundamental Education certified as

MINAS GERAIS CEARA PERNAMBUCO DISTRITO FEDERAL implemented with corrective actions literate by the end of the calendar year and reinforcement in 80% of the reaches 20,000 by 2012 schools in 2010

# 15-24 year-old students registered Number of over-age students in Decrease the number of overage in courses in the secondary vocational public primary system that are students in secondary education public schools reaches 30,000 in promoted at end of CY = 10,500 by 2010. 2012

Number of over-age students in High FE, in the state system that are promoted at end of CY = 36,000 by 2012 Number of over-age students in the state system in secondary education, that are certified as promoted by the end of CY = 36,000 by 2012 SAEPE test is applied at grades 3, 5, 9 at least every other year in all state and in an increasing share of municipal schools, reaching 90% by 2012 Development /implementation of Action Plan to disseminate information on school performance to parents Development / implementation of an Action Plan to improve teaching practices etc in response to results of student assessments HEALTH An institution accredited by ONA The % PSF/AB Teams classified in Provide the Health Card to 50% of the selected in 2008 to assess state and the AMQ quality ranking system DF population municipal hospitals and OSS hospitals reached 30% in 2011. % of hospitals formally assessed for At least 30% of teams improve their accreditation has reached 50% in AMQ ranking by 2011. 2010

MINAS GERAIS CEARA PERNAMBUCO DISTRITO FEDERAL A standardized costing system for Number of licensed hospitals has Cover 40% population with Family hospitals implemented following reached 12 in 2011. In addition, in Health Program agreed steps. 2011 at least one hospital is ONA quality certified. An impact evaluation of home # hospitais polo with standardized Cover 80% pregnant women with at healthcare has been carried out cost-accounting systems, and sending least 4 prenatal visits in Brazlândia, following agreed steps. annual cost reports to SESA, has Paranoá, Riacho Fundo and reached 15 in 2010-2011. Samambaia TRANSPORT / LOGISTICS % of highway network paved through DFTRANS controls operational and Pro-MG Pleno contracts has reached fare revenue data of the basic bus 42% in 2010 service Development of new highways DFTRANS remotely monitors 10% of through PPPs culminates in the fleet of the basic bus service publishing bidding documents of 5 through the CCO additional highways in 2010 Average % of Pro-Acesso paving works delays > 60 days compared with contractual terms calculated weighted by the extension in km of each work = 25% in 2010 % of 853 municipalities in MG with at least one paved access has reached 93% in 2010 WATER, ENVIRONMENT & SOCIAL QUALITY Average time for concession of % of invoicing for Gross Water environmental licenses has decreased distributed to industrial, agricultural, to 90 days in 2010. aquaculture users = 37% in 2011 # interdisciplinary indigenous health Number of urban water and sewage teams has reached 16 from 2008 connections has reached, respectively, through 2010 197,790 and 86,711 in 2011 # certified teachers in indigenous % of water losses (unaccounted-for teaching courses offered by SEE has water) has fallen to 28.2% in 2011 reached 212 from 2008 through 2010

MINAS GERAIS CEARA PERNAMBUCO DISTRITO FEDERAL DISBURSEMENT MECHANISMS Disbursements of the SWAp Disbursements will be semi-annual In the SWAp component, Bank Disbursements for Component 1 will component will be semi-annual and and will be based on expenditure disbursements will be made against be semi-annual, and transferred based on EEP spending reports. These reports prepared by the GoC estimated EEP expenditures every 6 against actual EEP expenditures. customized SOEs will thus be used to Secretary of Finance. The reports will months. Documentation of Bank Component 2 disbursements will be support loan withdrawal applications. identify program expenditures advances will be semi-annual and will transaction based, supported by The reports will identify actual incurred in the programs supported by be based on expenditure reports report-based disbursements-IFRs. program expenditures incurred under the Bank under the project. (IFR’s) prepared by the Secretary of the project Finance. There will be one retroactive There will be one retroactive There will be one retroactive disbursement against EEP disbursement against EEP disbursement against EEP expenditures of 20% of the total loan expenditures of 20% expenditures amount. The subsequent five disbursements The second, third and fourth EEP reports show program The subsequent five disbursements will consist of reimbursements of disbursements will be advances expenditures in each quarter will be against actual EEP actual expenditures incurred in the 3 against six months of projected EEP compared to the budget and variation. expenditures for the past 6 month or 6 month period preceding the date expenditures; the third disbursement The reports will also show periods of the disbursement also is conditioned upon submission achievement of primary surplus, of six Sector Strategic Plans that targets and disbursement-linked follow Government guidelines. indicators. The third and fifth disbursements also The fourth and fifth (final) Reporting of actual EEP expenditures require meeting disbursement-linked disbursements are conditioned upon will take place at the end of the indicators for calendar year 2008 and calendar year 2009 and 2010 primary period. In addition, every 12 months 2009, respectively surplus, satisfactory Bank portfolio, DLIs will also be considered. and meeting of conditions set by DLIs. Each sectoral group of EEPs must Secretariat’s annual budgets will be Approximately US$4 million for Each EEP must spend at least 70% of expend at least 70% of projected included in the Loan Agreement and a technical assistance will be disbursed the corresponding funds, as expenditures for the previous 9 month 70% rule will be enforced requiring at over the life of the Project following previously projected and disbursed, period for the second disbursement least 70% of each EEP budget to be traditional disbursement during the previous semester, for and for a 12 month period in the third spent by the GoC in a given period in arrangements. disbursements to take place. If the through sixth disbursements. If the order to activate loan disbursement 70% rule is not met, then the amount 70% rule is not met, then the amount of the disbursement will be reduced of the disbursement is reduced by per each sector that has not reached 20% per each sector that has not the target. achieved the 70% rule.

MINAS GERAIS CEARA PERNAMBUCO DISTRITO FEDERAL DISBURSEMENTS VS. INDICATORS The determination of whether There are two types of conditions: There are two types of disbursement There are two types of conditions: indicators are satisfactory for “global indicators”, which must be conditions: “global indicators”, which “global indicators”, which must be disbursement will be made on the met to activate any disbursement in a must be met to activate any met to activate any disbursement in a basis of GOMG reports to be given period, and “disbursement- disbursement in a given period, and given period, and “disbursement- presented to the Bank with necessary linked indicators”, to activate “disbursement-linked indicators”, to linked indicators”, to activate documentation. The Bank will verify disbursement of an amount activate disbursement of an amount disbursement of US$1 million per findings. In case of discrepancy, the corresponding to the value of each corresponding to the value of each DLI. Bank will, at its discretion, determine result calculated as the total amount result calculated as the total amount whether none or partial compensation of disbursement for the period divided of disbursement for the period divided is justified by the number of disbursement-linked by the number of disbursement linked indicators. indicators. REMEDIES Step 1) Determine whether sector Disbursements are pro-rated A menu of remedies is applied Step 1) Determine whether the GDF meets the 70% expenditure rule. If depending on the degree of according to circumstances or the complies with PAF; not, disbursement is reduced by 20 %. achievement of the target. indicator. Step 2) Determine whether each Step 2) For compliant sectors, For indicators with 0-1 target, prepare sector meets the 70 % expenditure determine whether the DLIs have an action plan or carry out a study. rule. If not, disbursement is pro-rated. been met. The magnitude of the For numerical targets, disbursements Step 3) For compliant sectors, disbursement is based on the number will be pro-rated depending on the determine whether the DLIs have of achieved indicators divided by the degree of achievement of the target. been met. number of total indicators (omitting Step 4) Deduct US$1 million for each those indicators for sectors that have DLI not achieved. not met the 70 % rule) This amount will be disbursed whenever the GDF achieves the target or satisfactorily implements an agreed Action Plan.

FEDERAL HEALTH PROGRAMS IN THE DF

VIGISUS II QUALISUS FAMILY HEALTH AIDS / STD CONTROL III PROJECT FOCUS Health surveillance and indigenous Efficiency, quality, governance of Primary Health Care HIV incidence, quality of life for health health care institutions people living with HIV PROJECT DEVELOPMENT OBJECTIVES Reduce mortality / morbidity from Improve quality, efficiency, Increase access to Family Health- Reduce incidence of STD & HIV by communicable and non- effectiveness of SUS-financed based primary HEALTH care in large, strengthening national response & communicable dieases and exposure delivery system via integrated urban municipalities. ensuring its sustainability to risk factors associated with ill regional healthcare networks, w/ health emphasis on high and medium complexity providers, support services, logistical systems Improve health outcomes of Contribute to improving continuity of Raise the technical quality of and Improve the quality of life of people vulnerable groups including care by strengthening the prevention, patient satisfaction with primary living with HIV/AIDS by indigenous populations and Quilombo detection, and treatment of diseases health care. strengthening national response & (descendents of slaves) communities and conditions with the greatest ensuring its sustainability impact on the country’s disease burden, (incl hypertension, diabetes, cancer) Improve overall effectiveness of Improve the efficiency and delivery system to prevent, detect, effectiveness of Family Health service treat priority chronic and non- providers as well as the broader communicable conditions delivery system Improve the quality and efficiency of services w/ emphasis on secondary- level hospitals, specialty, diagnostic, and emergency centers, logistical systems KEY INDICATORS Outcome indicators: Outcome Indicators For participating Municipalities Impact / Outcome indicators: • 80% of new TB cases cured. • % of population with a targeted Access/equity • Maintain HIV prevalence among • 60% of municipalities in every state priority condition receiving • 37 % PSF population coverage young women aged 15-24 at 0.6% have at least 95% coverage for diagnostic, preventive, curative care • .35 ratio patients w/ hypertension • Reduce prevalence of syphilis in DPT+HiB for children <1 yr • % of municipalities integrated into and diabetes managed by PSF teams males aged 17-19 to 1.0% • 50% fewer municipalities in Regional Governance/Management compared with estimated number of • Reduce prevalence of syphilis Amazonia considered at high risk structures patients among MSM to 4.0% for malaria. • % reduction in discharges for Effectiveness • Reduce HIV incidence related to

VIGISUS II QUALISUS FAMILY HEALTH AIDS / STD CONTROL III • 50% of indigenous pregnant women ambulatory care sensitive conditions • 85 % infants <1 with full vertical transmission to 8% in targeted districts receive at least 3 (diabetes, cancer, hypertension, etc.) vaccination coverage • Increase survival of adult AIDS prenatal consultations • % of the population having unique • 70 % pregnant women attended by patients to 72 months • 100 percent of indigenous mothers patient identification card linked to PSF teams - 7 or more pre-natal • Reduce AIDS incidence to 10 with children < 2 identified with clinical activities in the regional consultations inadequate weight gain receive network • Maintain 10 % referral rates from nutrition education and counseling • Share of the municipalities PSF to specialized care on culturally appropriate feeding integrated into the regional Patient Quality practices Referral and Management Center • 15 % all PSF teams applied quality evaluation instrument & ranked according to standard (AMQ) • 15 % PSF teams in using evidence- based clinical guidelines for hypertension and diabetes Efficiency • 8 % reduction of hospital admits for ARI for children <5. Institutional • 10 % municipalities applied quality evaluation instrument in PSF mgmt & coordination (AMQ) Intermediate results: For Participating States: For participating states: Process indicators: • 40% of cases of bacterial meningitis Effectiveness: • 40 % states establish performance • Increase condoms sold in Brazil to confirmed by laboratory analysis. • % of SUS financed providers with agreements w/ at least 25 % 550 million • 85% of municipalities at high risk signed performance contracts. municipalities of <100,000, • No. of laboratory supplies for for dengue have fewer than 10% of • % of municipalities covered by an including at least 10 performance diagnosis and ARV patient follow- households with a health visit organized transport system for indicators. up developed. pending patients. • 10 % of municipalities <100,000 in • % of CTAs that received at least • 90% of deaths are notified to vital • % of healthcare facilities that at least half of the states, participate 50% of test results in the last 6 mos. statistics implemented a risk classification in quality assessment program within one week to 65%. • At least 50% of states calculate a system for emergency cases. (AMQ), including completion of • Increase % states who are valid infant mortality rate using vital Efficiency self-assessment and development of subcontracting NGO subprojects statistics • Number of facilities which have plan to address gaps. through fund-to-fund transfers • Environmental health surveillance undergone a restructuring (merger, • Increase % states that are meeting subsystems for water, air and soil conversion, strategic alliances, or 75% of agreed targets. are fully developed at the national change of service profile). level. • % of hospitals with the cost / bed • 70% of states have prepared career day and other benchmarking data.

VIGISUS II QUALISUS FAMILY HEALTH AIDS / STD CONTROL III plans for health surveillance Quality professionals • % of basic care centers which have • All modules of indigenous obtained a quality certification from information system functioning in the MOH (AMQ program) all DSEIs. • % of hospitals which have achieved • 70% of health teams in targeted at least level 1 accreditation per DSEIs providing integrated, system established by the National benchmark service plan. Accreditation Organization. • One-third of new AIS hires are indigenous women. • Indigenous nutritional surveillance system fully operational in 10 DSEIs. For Federal Ministry of Health For Federal Ministry of Health: Output indicators • Definition of the standards, survey • Establishment of a RBM system • Increase coverage of treatment of instruments, scoring system, and linking project financing to states / HIV+ women in childbirth to 95%. proposed platform for an municipalities; • Increase testing of sexually active accreditation system for integrated • PSF costs collected and analyzed, population aged 14+ to 50%. networks. accounting system developed; • Increase % sex workers who used • Nat’l clearinghouse established for • National PSF Performance Award condom last sex with irregular sharing info re integrated delivery program under implementation; partner from to 75% systems; holds conferences on • Proficiency test of PSF professionals • Increase % of pop spontaneously regional experiences and funds developed for recent graduates of all indicating sexual relations are a research studies of RHCN design / PSF training centers; source of HIV transmission to 95% implementation. • At least 1 inter-municipal • Increase % of AIDS patients who • Definition of the indicators, data cooperation plan implemented in report they have taken 100% of their collection instruments, analytic each of 20 states to strengthen PSF, medications to 75% methods, feedback system for w/ activities in three areas: • Increase mean first CD4 cell count. monitoring management, coordination, service (in people not on ART) to 425/mm • Approval of guidelines, methods, provision parameters for the preparation, implementation, evaluation of clinical pathways for targeted priority conditions. • Evaluation plan / base line survey completed for RHCN subprojects

Annex 3: Results Framework and Monitoring BRAZIL: FEDERAL DISTRICT MULTISECTOR PUBLIC MANAGEMENT PROJECT PROJECT DEVELOPMENT INDICATORS # DATA DLI INDICATORS FREQUENCY BASELINE TARGETS SOURCE 1st year 2nd year 3rd year

GLOBAL INDICATORS 1 Comply with the PAF (Annual Financing Plan) as Every measured by (i) ratio Semester financial debt/real net

income; and (ii) expenditures on personnel. 2 Execute at least 70% of the budget of each Eligible Every

Expenditure Program Semester included in the project.

PUBLIC SECTOR MANAGEMENT 3 X Secretariats/GDF agencies Diario Oficial sign annual Results Annual (SEPLAG to Agreements (Termos de 1 10 21 26 send the Compromisso) defining pertinent issues) performance targets 4 X Secretariats/GDF agencies issue annual performance Annual reports, which are then SEPLAG 0 1 10 21

vetted and published by SEPLAG 5 Financial Management Training and Debt MIS PEFA Reform Action Plan based Annual Action Plan SEPLAG certification Contract MIS Action Plan fully on PEFA diagnostic agreed program starts implemented implemented implemented 6 E-compras Procurement Action Plan Training and established OECD Indicators based on OECD Indicators Annual Action Plan SEPLAG certification Budget and Action Plan fully diagnostic implemented agreed program starts procurement implemented

integrated

# DATA DLI INDICATORS FREQUENCY BASELINE TARGETS SOURCE 1st year 2nd year 3rd year 7 Performance incentives in Annual the Education Sector SEDUC No No Yes Yes

8 Performance incentives in Annual Health Sector24 SESA No No Yes Yes

EDUCATION 9 Increase the efficiency of school management Annual SEE 0 50% 70% 90% strategies, as measured by selected indicators. 10 Improve IDEB score in 125 Years of National and selected schools located in National State data on 2005 IDEB of poor urban areas25 Assessment tests student 125 selected 2% NA 2% (Prova Brasil) performance26 schools and/or State Assessment test 11 X Increase access to early childhood programs in low- Education income Regional Areas Annual 77% 80% 85% 90% Census (RA) for children aged 4-5 by 13 % 12 X Implement full-time basic education activities in low- income areas of DF Annual SEE 0 50 schools 70 schools 100 schools (Educacao de tempo integral) in 100 schools 13 Improve completion rates Education Annual 63% 70% 75% 80% in Basic Education Census 14 Improve completion rates in Annual Education 75% 80% 83% 85% Secondary Education Census

24 Subject to authorization by the Legislative Assembly. 25 Number of schools and regions identified in the Operations Manual (OM). 26 IDEB, SEE’s School Monitoring system. List of schools and respective IDEB and projection included in the OM will be monitored accordingly.

# DATA DLI INDICATORS FREQUENCY BASELINE TARGETS SOURCE 1st year 2nd year 3rd year 15 X Decrease number of Annual Program students with overage Evaluation distortion rate in Basic System 92,104 67,000 42,000 17,000 Education Education Census 16 X Decrease the number of Annual Program students with overage Evaluation distortion rate in Secondary System 34,805 18,000 15,000 3,000 Education Education Census

HEALTH 17 X Provide the Cartão de Saúde to 50% of the DF Annual SES 10% 30% 40% 50% population 18 X Cover 40% population with Annual SESA 7% 20% 30% 40% Family Health Program 19 X Cover 80% pregnant women with at least 4 prenatal visits in Annual SESA 72% 75% 78% 80% Brazilândia, Paranoá, Riacho Fundo and Samambaia 20 Decrease hospitalization due to complications of Annual SESA 1.9 % 1.8% 1.75 % 1.7% diabetes 21 Increase proportion of 40% 60% 75% 90% infant deaths Annual SESA Investigated 22 Increase pap smear rate in Annual SESA 13.4 % 16% 18% 20% women 25-59 years old 23 Establish management of 70% activation the Hospital St. Maria by a 50% activation Reporting 30% activation civil society organization Reporting Costing Annual SESA OS selected Reporting (OS) Costing User survey User survey User survey >70% good evaluation

# DATA DLI INDICATORS FREQUENCY BASELINE TARGETS SOURCE 1st year 2nd year 3rd year

TRANSPORT 24 Submit the urban transport Plan with Final report master plan (PDTU) for Conclusion of immediate and approved by SET approval to the State field work short term Plan does not and draft law Legislature Annual SET Technical Report actions exist submitted to 3 approved by Technical Report State Legislature SET 4 approved by for approval SET 25 X DFTRANS controls DFTRANS has DFTRANS DFTRANS DFTRANS has operational and fare revenue partial access updates the processes direct access to data of the basic bus service to secondary secondary primary Annual DFTRANS primary operational & operational & operational & operational & fare revenue fare revenue data fare revenue data fare revenue data data on a daily basis on a daily basis 26 X DFTRANS remotely 10% of the fleet Contract for the 100% of the monitors 10% of the fleet of of basic bus implementation infrastructure of the basic bus service Annual DFTRANS No CCO exists service remotely of the CCO the CCO through the Control Center monitored awarded installed for Operations (CCO) through the CCO 27 Increase regularity index for trip compliance (timetables and itineraries) by bus Annual DFTRANS 77% 80% 85% 90% operators of the basic bus service 28 Reduce number of complaints received by DFTRANS regarding non Annual DFTRANS 9,000 8,000 7,500 7,000 compliance with timetables and itineraries

BRAZIL: FEDERAL DISTRICT MULTISECTOR PUBLIC MANAGEMENT PROJECT PROJECT INDICATOR PROTOCOLS # DLI INDICATORS PROTOCOL

GLOBAL INDICATORS 1 Comply with the PAF (Annual Financing Plan) as measured by (i) ratio financial debt/real net Published every four months by Court of Accounts. income; and (ii) expenditures on personnel.

2 Execute at least 70% of the budget of EEP by Ratio of expenditures over approved budget x 100 for the February disbursement. sector. Ratio of expenditures over programmed budget for first semester x 100 for the August disbursement.

PUBLIC SECTOR MANAGEMENT 3 X Secretariats/GDF agencies sign annual Results Results Agreements (Termos de Compromisso) defining performance targets signed by the Agreements Governor and the relevant Secretary or agency, and published in the Diario Oficial.

4 X Secretariats/GDF agencies issue annual Number of annual performance reports presented to SEPLAG by March 31. Technical performance reports, which are then vetted and evaluation by SEPLAG delivered to the legislature by April 30. published by SEPLAG

5 A fiduciary reform strategy is implemented which includes a Financial Management Action Plan Agreed; Training Program completed and trainees certified; FMIS includes debt Reform Action Plan based on PEFA diagnostic and contract modules; PEFA repeated.

6 A fiduciary reform strategy is implemented which includes a Procurement Action Plan Action Plan Agreed; Training Program completed and trainees certified; E-compras portal based on OECD Indicators diagnostic established; Budget and procurement integrated.

7 Performance incentives in the Education Sector Payments distributed according to established performance metrics in Regulatory Decree, as verified by SEDUC performance monitoring indicators and the financial management system.

8 Performance incentives in Health Sector Payments distributed according to established performance metrics in Regulatory Decree, as verified by SESA performance monitoring indicators and the SESA financial management system.

# DLI INDICATORS PROTOCOL

EDUCATION 9 Increase efficiency of school management Increase in the annual % of schools complying with at least the 4 indicators from the Gestao strategies by 2011 Compartilhada Terms of Agreement signed with the SEE: (i) decrease in student absenteeism; (ii) decrease in teacher absenteeism (in the first year, agreement on instrument to measure teacher absenteeism); (iii) decrease in student drop out rates; and (iv) full participation of the School Council as informed by the school monitoring system, and indicated in the Operations Manual. 10 Improve IDEB in 125 select schools with low Increase in each school IDEB, which is composed of the results of the application of the test of IDEB located in low-income Administrative student performance in 125 selected schools and grades, as measured by the National Regions. Assessment Tests (Prova Brasil) and/or the State assessment test (Prova Brasilia) and other school indicators. The Prova Brasilia is only applied on alternative years with the Prova Brasil done by MEC. Name of schools and IDEB targets to be achieved for each school included in the Operations Manual and will be monitored during project implementation.

11 X Increase access to early childhood program in Increase in the percentage of students aged 4-5 enrolled in early childhood programs in low- low-income Administrative Regions for income areas. The Administrative Regions and areas are indicated in the Operations Manual. children aged 4-5 in 2011.

12 X Implement full-time basic education activities Number of schools implementing Educacao de Tempo Integral program, as described in (Educacao de Tempo Integral) in 100 schools Operations Manual.

13 Improve completion rates in Basic Education Increase the percentage of students in fundamental education (grades 1 to 8) who will complete (grades 1-9) the fundamental education level in each year as indicated in state and national annual census.

14 Improve completion rates in Secondary Increase the percentage of students in secondary education who will complete this level of Education (Ensino Médio) schooling in each year as indicated in state and national annual census.

15 X Decrease the number of overage students in Number of students in fundamental education who will be promoted /accelerated, at least, two grades 1- 9 grade levels after being exposed to the overage correction methodologies adopted by the DF, the Airton Sena Program (grades 1-4) and the Roberto Marinho program (grades 5-8). Certification of promotion/acceleration will be based on each program’s evaluations. Evaluation procedures described in the Operations Manual. To complement the monitoring of these programs, former students will be submitted to National Assessment test and other state evaluation.

# DLI INDICATORS PROTOCOL 16 X Decrease the number of overage students in Number of students in secondary education who will finish this level of schooling in less than secondary education three years, the time requested for the regular secondary education program. Certification of promotion/acceleration will be based on the specific program evaluation of the Roberto Marinho program. Evaluations procedures described in the Operations Manual.

HEALTH 17 X Provide the Health Card to 50% of the DF Number of people registered in DF / DF Population X 100. population

18 X Cover 40% of the population with Family Population reached by PSF / DF Population X 100. Health Program

19 X Cover 80% pregnant women with at least 4 Newborns with four or more pre-natal consultations living in Brazlândia, Paranoá, Riacho prenatal visits in Brazlândia, Paranoá, Riacho Fundo and Samambaia / Total of newborns in these regions X 100 Fundo and Samambaia

20 Decrease hospitalization due to complications Number of internments caused by Diabetes Mellitus complications/ Total of inpatient (except of Diabetes child birth) in the same place and period X 100

21 Increase proportion Infant Deaths Investigated Number of investigated deaths under 1 year old / total number of deaths under 1 year old X 100

22 Increase pap smear rate in women 25-59 years Number of pap smears in women 25-59 years old / Total number of women 25-59 years old X old 100

23 Establish management of the Hospital St. Maria OS managing the hospital in the first year; in the third year, 70% activation; Annual Reporting; by an OS Costing in place; and more than 70% users consider the hospital services good or very good in a representative survey.

# DLI INDICATORS PROTOCOL

TRANSPORT 24 Submit the urban transport master plan (PDTU) SET sends to Bank copies of PDTU intermediate reports, final report and draft law submitted for approval to the State Legislature for approval to the State Legislature

25 X DFTRANS controls operational and fare Independent technical review certifies compliance with the targets revenue data of the basic bus service Operational data: data on trips carried out by the operators of the basic bus service, including for each vehicle the date of operation, vehicle number, number of the bus service (código da linha), sequence of the boarding passengers (roleta) of the day of the operation, vehicle departure time and place, and vehicle arrival time and place. Fare revenue data: data on the revenues of the operators of the basic bus service, including for each vehicle the date of operation, vehicle number, bus service (código da linha), sequence of the boarding passengers (roleta) of the day of the operation, total no. of daily passengers by passenger category, and total daily revenue. Primary data: cryptographic data directly received from the ticket validators without any previous treatment by the operators/association of operators. Secondary data: not primary data received by DFTRANS from the operators in the form of reports (in paper and electronically). Basic bus service: services of the road mode that may operate through physical, fare and operational integration and that aim at providing citizens with universal, secure and equal access to the urban space as opposed to services that aim at serving special user segments (according to Law 4011 of September 2007). Partial access: DFTRANS receives secondary operational and fare revenue data from the operators in form of reports. Daily update of data: means that the data is available for examination in the information system of DFTRANS at 6 PM of the first working day after the day of operation to which the data refers. Direct access: access at the moment in which the data is downloaded from the collection servers of the ticket validators. Daily processing: preparation, analysis and correction of the data and daily (at 6 PM of the first working day after the day of operation to which the data refers) production of the “Listagem Demonstrativa Sintética da Operação” (LDSO) or equivalent report and use of this data for planning and supervision activities of the basic bus service.

# DLI INDICATORS PROTOCOL 26 X DFTRANS remotely monitors 10% of the fleet Independent technical review certifies compliance with the target of the basic bus service through the CCO CCO: physical space with hardware, software, equipment and staff to monitor in real time the position of the bus fleet. Contract awarded: DF awarded the contract to the company/consortium that will implement the CCO. 100% of infrastructure and equipment installed: hardware, software and equipment to remotely monitor in real time the position of the bus fleet installed in the premises of the CCO and 10% of the fleet equipped with sensors/positioning equipment and communication system. Bus fleet remotely monitored: real time data on the position of at least 10% of the fleet is received and five staff of DFTRANS are trained to monitor the fleet (at least 80 hours of training).

27 Increase regularity index for trip compliance DFTRANS prepares calculation and certifies it (timetables and itineraries) by bus operators of Regularity index for trip compliance: total number of trips considered by DFTRANS as the basic bus service regularly carried out divided by the total number of planned trips (this index is calculated as a monthly average) Regularity: compliance with the timetables and itineraries as stated by DFTRANS in the service orders (ordens de serviço)

28 Reduce number of complaints regarding non DFTRANS prepares calculation and certifies it compliance with timetables and itineraries Complaint: complaint received through the Sistema de Ouvidoria e Informações (SOI) or received by DFTRANS equivalent system regarding the non compliance with timetables and itineraries of the basic bus service.

Annex 4: Detailed Project Description BRAZIL: FEDERAL DISTRICT MULTISECTOR PUBLIC MANAGEMENT PROJECT

1. The GDF Multisector Public Management Program is a long-term endeavor to support reforms in public sector management. The three pillars of this program are modernization, decentralization and integration of public services. The project will contribute to improving the quality of life of DF residents, reducing inequalities between Brasilia’s Plano Piloto (central city) and the surrounding Administrative Regions, and increasing the DF’s competitiveness and growth potential.

2. The Project will co-finance the $400 million GDF Multisector Public Management Program through a Specific Investment Loan (SIL) of US $130 million to be disbursed in three years (2009-2012). The project will follow a Sector Wide Approach (SWAp), with the Bank co-financing a percentage of Government Eligible Expenditure Programs (EEP). Disbursements will be triggered by the execution of the agreed reform programs and achievement of specific results targets. The project will use state government systems, procedures and staff, both to foster ownership and strengthen the GDF’s institutional capacity.

3. The proposed project will support GDF reform in public sector management as an overall strategy, as well as targeted programs in the education, health and transport sectors. The program is to be implemented in two phases over a period of 10 years. The first phase is a 3-year project, supported by Bank financing consisting of: (i) a SWAp component of US$ 120 million reflecting expenditures in EEPs in the education, health and transport sectors; and (ii) a US$10 million technical assistance component.

Project development objective and key indicators

4. The proposed project development objectives (PDOs) are the following:

(i) improve public sector management and accountability by supporting and expanding results-based management practices and improving fiduciary oversight; (ii) increase access, quality and efficiency of the education, health and public transport services (by modernizing the education system; modernizing, decentralizing and integrating various levels of health care; and strengthening the institutional and operational capacity of the public transport sector).

(ii) Project Development Indicators Global Indicators Baseline

PSM 26 Secretariats/GDF agencies sign annual performance agreements 1 signed 21 Report annually on performance. No reporting A fiduciary reform strategy fully implemented in 2011, including Financial Management Reform Action Plan based on PEFA Fiduciary diagnostic. Action Plans Procurement Action Plan based on OECD Indicators diagnostic. agreed Performance incentives are implemented in the education sector No incentives Performance incentives are implemented in the health sector27 No incentives Education By 2011 Increase efficiency of school management strategies NA Improve IDEB score in 125 selected schools 0 Increase access to early childhood programs for children ages 4 to 5 in 77% low-income areas to 90% Improve completion rates in basic education (grades 1-9) to 80% 63% Improve completion rates in secondary education to 85% 75% Decrease the number of students with overage distortion rate in basic 92,000 education (grades 1 to 9) to less than 17,000 Decrease the number of students with overage distortion rate in secondary 34,800 education to less than 3,000 Implement a full-time school program (Tempo Integral) in 100 schools 0 located in low-income areas Health By 2011 Provide the Citizen Health Card to 50% of the DF population. 10% Cover 40% population by the Family Health Program. 7% Cover 80% pregnant women with at least 4 prenatal visits in Brazlândia, 72% Paranoá, Riacho Fundo and Samambaia. Decrease hospital internment rate due to complications of diabetes to 1.7% 1.9% Increase proportion of infant deaths investigated to 90% 40% Increase pap smear rate in women 25-29 years old to 20% 13.4% Establish OS management in the Hospital St. Maria. OS starts Transport By 2011 Submit the Urban Transport Master Plan for approval by legislature. No Plan Control operational and fare revenues data of the basic bus service. Partial access Monitor remotely 10% of the fleet of the basic bus service through the Not Control Center for Operations (CCO). monitored Increase the regularity index for trip compliance (timetables and itineraries) of operators of the basic bus service to 90%. 77% Reduce number of complaints received by DFTRANS regarding 9,000 compliance with timetables and itineraries to 7,000.

27 This requires approval of a specific law.

5. Project Development Indicators (PDIs). The project will track 28 project development indicators that will measure progress towards achievement of the PDOs. Some of these PDIs are also indicators that will trigger disbursements (Disbursement- Linked Indicators, or DLIs). The remainder, while not linked to disbursements, will measure implementation progress and contribute to substantive dialogue between Bank sector experts and government counterparts during project implementation (Annex 3). Progress toward meeting all indicators will be tracked and reported systematically.

Project components

6. Component 1. Strengthening Results-Based Management in the Public Sector (US$ 390 million). This component will contribute to the implementation of the proposed program by supporting critical public sector management reforms, particularly in the education, health and transport sectors. Component 1 follows a SWAp approach by financing a percentage of the Eligible Expenditure Programs in these sectors.

7. Institutionalizing RBM in policy-setting and public administration, as well as strengthening fiduciary oversight, will have a positive impact on the efficiency and effectiveness of government expenditures, including the three targeted sectors. A project DLI will support the spread of annual Results Agreements across the Secretariats and agencies of the GDF. To create incentives for performance improvements and to strengthen administrative accountability, it will be essential to report performance against the agreed RA targets in a timely and user-friendly manner. Thus, the project also includes Performance Reports (SPRs) as a DLI. Each line secretariat and agency with a signed RA is to present an annual report on its performance, both for accountability and for budget and planning purposes. Subject to legislative approval, the GDF also plans to introduce rewards (e.g., additional budget, bonus payments) for those organizations/units that meet or exceed their performance targets. In the education sector, the RA anticipates that a bonus will be paid to all employees of a school that meets its performance targets for student education achievement. Regulations to implement this reward are to be issued under the Project. For the other sectors, creating such a financial reward first requires legislative approval. The draft law to establish this authority has been submitted to the DF legislative assembly and is under consideration by a legislative committee. Progress toward implementing these rewards will be tracked as a project indicator, although not linked to disbursement.

8. The SWAp Component will finance EEPs in the areas of education, health and transport (Table 1) that will contribute to several important objectives:

Modernizing the education system, and improving the quality, efficiency and equity of basic education. This will be achieved by adopting a new school-based management model, which includes performance-based results strategies and performance-based incentives for schools. The project will target schools with the lowest education indicators, and those located in low-income areas of the Federal District. Modernizing, decentralizing and integrating various levels of health care (primary, secondary and tertiary), aiming at increasing access, quality and efficiency. These objectives will be achieved through the establishment of RBM practices in the sector, development of managerial and clinical information system and of the Electronic Health

Card; extension of primary health care (including by establishing 294 Family Health teams in Administrative Regions) to decrease pressure on hospitals; and piloting a public- private partnership for management of the Hospital Sta. Maria. Modernizing, improving management and capacity strengthening in the SET and DFTRANS to permit them to more effectively and efficiently plan, regulate, manage, and supervise public transport services and ultimately improve their quality, including access. Among others, this is expected to include support for the implementation of a CCO, the introduction of an archive management system, the mapping and revision of internal processes, procedures and routines, the automation of tachograph reading, software, hardware and other equipment to modernize the technological basis in the transport sector, training activities, support material, and equipment for supervision.

9. Component 2. Building Capacity in the Public Sector (US$10 million). This component will finance technical assistance and training to support fulfillment of the performance targets established in Component 1.

10. Specific technical assistance activities are included to support the implementation of results-based management in the GDF, particularly in the targeted sectors. Resources are included for training in strategic planning, definition of indicators (for first- and second-level RAs), and M&E for staff of SEPLAG and the Secretariats of Education, Health, Transport and DFTRANS. As it is critical to search for lessons to make regular improvements to results-based management practices in the GDF, the Project assigns TA resources to carry out an impact evaluation of the Management Modernization program.

11. Resources are allocated to support the design and implementation of cost- accounting systems in the education and health sectors. Developing this capacity for measuring the costs of outputs of individual service delivery units (e.g., schools, surgical units in hospitals) is critical to improve over time the quality of performance indicators that may be included in the Results Agreements (both for first- and second-level RAs). This exercise will drive greater efficiency as well as effectiveness in government expenditures. The Project’s TA resources for these cost-accounting systems will complement R$2.4 million that the GDF has mobilized through the Competitive Brazil Movement (Movimento Brasil Competitivo, MBC), a non-profit organization, certified as an OSCIP (Organização da Sociedade Civil de Interesse Público). The MBC signed a Cooperation Agreement in March 2007 to assist the GDF in implementing its Programa Modernizando a Gestão Pública, including the specific goal to optimize the use of public funds in the education and health sectors. Within this framework, the MBC will contract the Management Development Institute (Instituto de Desenvolvimento Gerencial, INDG) for a project to improve the quality of expenditures in these two sectors. That work includes management training activities as well as activities to identify expenditure categories and the quality of existing expenditure data. This analysis can then be complemented by the Bank’s TA resources to design and develop a cost-accounting system in these two sectors. When finished, these systems will link to the Financial Management improvements tracked as a PDI. Admittedly, the coordination challenges for this activity represent a risk and technical challenge for the proposed project (see Appraisal Summary and Risk Matrix).

12. While national and international models are instructive, all governments must adjust these management tools to suit their particular setting and traditions. It is essential

that the GDF ensure a robust process to assess what is working well and where obstacles or difficulties remain to achieve the transformation of behaviors and performance that are the goals of this results-based management reform. The technical assistance component of the project therefore will support an Impact Evaluation of the overall Management Modernization Program. Among the questions this impact evaluation will address are the following:

• Are Results Agreements defining meaningful and measurable claims about the volume and quality of outputs/services/outcomes that Secretariats and service delivery units will deliver? • Can service providers (schools, hospitals, etc.) be ranked appropriately/fairly? • What evidence is there of the consequences (financial, reputation, career advancement) for meeting or failing to meet these performance measures? • How are performance expectations associated with the budget estimates? • How does the performance information compare with what was available to the Legislative Assembly prior to the reform?

13. In the education and health sectors, technical assistance activities in support of PSM reform include evaluations of: (i) the school management program; (ii) teacher absenteeism; (iii) outsourcing service provision for school lunches (merenda), and (iv) evaluation of OS management, including hospital management. In the transport sector, this component aims at supporting the SET and DFTRANS in their efforts to integrate the different public transport modes and to regularize the provision of public transport services in the DF. The activities identified for that purpose include the elaboration of two studies to support public transport fare integration and the definition/fine tuning of the mechanism to grant operating licenses for public transport services.

BRAZIL: FEDERAL DISTRICT MULTISECTOR PUBLIC MANAGEMENT PROJECT

Program PDO PDI DLI Monitoring Indicators

Modernization of GDF Improve public sector Secretariats/GDF agencies Secretariats/GDF agencies Performance incentives in Management Systems management and sign annual performance sign annual performance the Education Sector focusing on education, accountability agreements defining agreements defining Performance incentives in health and transport performance targets performance targets the Education Sector sectors GDF Secretariats adopt Cost accounting system in RBM, including identifying Secretariats/GDF agencies Secretariats/GDF agencies Education and Health performance targets and issue annual performance issue annual performance sectors subsequently reporting to reports reports Fully-costed action plan to government and the public implement priority against those targets. recommendations identified through PEFA diagnostic. PEFA action plan implemented, including oversight and audit. OECD Indicators used to benchmark progress in strengthening government procurement capacity. E-procurement system upgrade completed. School Management Improve public sector Results Agreement signed Results Agreement signed Increase % schools Program (Gestao management and between the Governor and between the Governor and implementing School Compartilhada) accountability Secretary of Education. Secretary of Education. Councils as defined in the Results Agreements Results Agreements Operational Manual signed between the signed between the Decrease students’ Secretary and School Secretary and School absenteeism Management. Management. Decrease teachers’ Awards Implemented absenteeism (in the first Increase the efficiency of year, agreement on school management instrument to measure strategies. teachers’ absenteeism).

Program PDO PDI DLI Monitoring Indicators

Early Childhood Program Increase access, quality and Increase access to early Increase access to early % of children enrolled in efficiency of the education childhood programs by childhood programs by early childhood programs in sector 13% for children ages 4 to 13% for children ages 4 to low-income areas as 5 in low-income areas. 5 in low-income areas indicated in the Operational Manual Full-time School Program Increase access, quality and Implement a full-time Implement a full-time Number of schools in low- (Escola Tempo Integral) efficiency of the education school program (tempo school program (tempo income areas offering full- sector integral) in 100 schools integral) in 100 schools time education programs as located in low-income located in low-income defined in the Operational areas. areas. Manual School for All (Escola de Increase access, quality and Improve completion rates Decrease the number of Improve IDEB in 125 Todos Nos) efficiency of the education in fundamental education students with overage schools located in poor sector (grades 1 to 9) distortion rate in basic urban areas Improve completion rates education (grades 1 to 9) % of completion rates in in secondary education Decrease the number of fundamental education Decrease the number of students with overage % of completion rate in students with overage distortion in secondary secondary education distortion rate in basic education. Number of students education (grades 1 to 9) promoted in overage Decrease the number of programs in fundamental students with overage education distortion in secondary Number of students education. promoted in overage programs in secondary education Modernization of Health Improve public sector Results Agreement signed Results Agreement signed Establish management by Management System management and between the Governor and between the Governor and OS in the Hospital St. accountability Secretary of Health. Secretary of Health. Maria Provide Health Card Provide Health Card Increase access, quality and (Cartão de Saúde) to 50% (Cartão de Saúde) to 50% efficiency of the health of DF population of DF population. sector.

Program PDO PDI DLI Monitoring Indicators

Extension Primary Health Increase access, quality and Cover 40% population Cover 40% population Increase proportion Infant Care efficiency of the health with Family Health with Family Health Deaths Investigated sector. Program. Program. Increase pap smear rate in Cover 80% pregnant Cover 80% pregnant women 25-59 years old women with at least 4 women with at least 4 Decrease hospitalization prenatal visits in prenatal visits in due to complications of Brazlândia, Paranoá, Brazlândia, Paranoá, Diabetes Riacho Fundo and Riacho Fundo and Samambaia Samambaia

Management of the DF Improve public sector DFTRANS controls DFTRANS controls Submit the urban transport Public Transport Fund management and operational data and data operational data and data master plan (PDTU) for accountability on fare revenues of the on fare revenues of the approval to the State Management of Transport basic bus service. basic bus service. Legislator. services - SET Increase access, quality and DFTRANS remotely DFTRANS remotely Reduce number efficiency of public monitors 10% of the fleet monitors 10% of the fleet complaints received by Maintenance of General transport services. of the basic bus service of the basic bus service DFTRANS to 7,000. Administrative Services - through the CCO. through the CCO. DFTRANS Increase regularity index for trip compliance Supervision of the Public (timetables and itineraries) Transport System of operators of the basic service to 90%. Maintenance and Rehabilitation of the DF Bus Terminals

Annex 5: Project Costs BRAZIL: FEDERAL DISTRICT MULTISECTOR PUBLIC MANAGEMENT PROJECT

Project Cost By Component and/or Local Foreign Total Activity US$ US$ US$ Component 1 – Swap Component

Education Sector 176,000,000 176,000,000 Health Sector 176,000,000 176,000,000 Transport Sector 38,000,000 38,000,000

Component 2 – Technical Assistance 9,675,000 9,675,000

Total Baseline Cost 399,675,000 399,675,000 Physical Contingencies Price Contingencies Total Project Costs 399,675,000 399,675,000 Interest during construction Front-end Fee 325,000 325,000 Total Financing Required 130,000,000 130,000,000

GOVERNMENT OF THE FEDERAL DISTRICT

PROGRAM OF MODERNIZATION OF THE FEDERAL DISTRICT PUBLIC MANAGEMENT ELIGIBLE EXPENDITURE PROGRAMS

2008 2009 2010 2011 Budget Line Program Reais Reais Reais Reais Total

Program 0142 – Education Always

18.101.12.365.0142 2388 - Maintenance of Education of 6,000,000 4,000,000 5,000,000 5,000,000 20,000,000 18.903.12.365.0142 Children 4-5 years

18.101.12.361.0142 2389 - Maintenance of Fundamental 49,200,611 45,599,789 63,773,951 53,925,649 212,500,000 18.903.12.361.0142 Education (grades 1-9)

18.101.12.362.0142 2390 – Maintenance of Secondary 5,000,000 6,000,000 7,000,000 7,000,000 25,000,000 18.903.12.362.0142 Education

Program 0164 – School for All

18.101.12.365.0164 3271 – Rehabilitation of Schools for 1,000,000 7,500,000 9,000,000 9,000,000 26,500,000 Children 4-5 years

Program 2100 - Modernization of School Management

18.101.12.122.2100 2387 - Decentralization of Financial 8,000,000 12,000,000 13,000,000 13,000,000 46,000,000 Resources for DF Schools

TOTAL 69,200,611 75,099,789 97,773,951 87,925,649 330,000,000 EDUCATION

GOVERNMENT OF THE FEDERAL DISTRICT

PROGRAM OF MODERNIZATION OF THE FEDERAL DISTRICT PUBLIC MANAGEMENT ELIGIBLE EXPENDITURE PROGRAMS

2008 2009 2010 2011 Budget Line Program Reais Reais Reais Reais Total

Program 0214 – Modernization of SES

23.901.10.302.0214 3467.6069 – SES equipment -- 20,000,000 20,000,000 20,000,000 60,000,000

Program 0071 – Development and Maintenance of Health Information System

23.901.10.126.0071 3930 - Technological Modernization 16,000,000 21,000,000 27,000,000 32,000,000 96,000,000

Program 5000 - Modernization of Primary Health Care

23.901.10.301.5000 2156 – Maternal and Child Health 660,000 1,200,000 1,400,000 3,000,000 6,260,000

23.901.10.301.5000 2335 – Family Health 4,500,000 6,000,000 7,200,000 8,600,000 26,300,000

Program 0900 – Communicable Diseases

23.901.10.305.0900 2155 – Communicable Diseases -- 2,700,000 3,800,000 4,940,000 11,440,000

Program 0400 – Hospital Management 2145.0006 - OS Management of St. 23.901.10.302.0400 -- 28,000,000 51,000,000 51,000,000 130,000,000 Maria Hospital TOTAL HEALTH 21,160,000 78,900,000 110,400,000 119,540,000 330,000,000

GOVERNMENT OF THE FEDERAL DISTRICT

PROGRAM OF MODERNIZATION OF THE FEDERAL DISTRICT PUBLIC MANAGEMENT ELIGIBLE EXPENDITURE PROGRAMS

2008 2009 2010 2011 Budget Line Program Reais Reais Reais Reais Total

Program 0100 – SET Management Support 8517 – Maintenance of General 26.101.26.122.0100 1,000,000 4,000,000 4,800,000 5,800,000 15,600,000 Administrative Services - SET Program 2800 - Safe Transportation

2875 - Management of the Public 26.905.26.453.2800 3,526,228 7,000,000 8,400,000 10,080,000 29,006,228 Transport Fund – DFTRANS

8517 - Maintenance of General 26.204.26.122.2800 2,000,000 6,000,000 7,200,000 8,600,000 23,800,000 Administrative Services – DFTRANS*

6150 – Supervision of Public Transport 26.204.26.453.2800 150,000 300,000 450,000 600,000 1,500,000 System- DFTRANS

4002 – Maintenance, rehabilitation and 26.101.26.122.2800 -- 1,700,000 2,040,000 2,450,000 6,190,000 automation of bus terminals - SET

TOTAL TRANSPORT 6,676,228 19,000,000 22,890,000 27,530,000 76,096,228

TOTAL PROJECT 97,036,839 172,999,789 231,063,951 234,995,649 736,096,228

*The GDF Annual Budget Law will be updated to increase amount of funds in 2010-2011.

Annex 6: Implementation Arrangements BRAZIL: FEDERAL DISTRICT MULTISECTOR PUBLIC MANAGEMENT PROJECT

1. The Brazil Federal District Multisector Management Project will be implemented over a three-year period (2009-2012). The Project is expected to be effective in July 1, 2009, and the Closing Date will be December 31, 2012

2. The Borrower will be the Government of the Federal District – GDF. The Project will be jointly implemented by the Secretariat for Planning and Management (SEPLAG) and the Secretariats for Education, Health and Transport/DFTRANS, whose main responsibilities are represented in the diagram below.

BORROWER GOVERNMENT OF FEDERAL DISTRICT-GDF

EXECUTING AGENCY SECRETARIAT FOR PLANNING AND MANAGEMENT - SEPLAG

GENERAL COORDINATION “SECRETARIA ADJUNTA” OF THE SECRETARIAT FOR PLANNING AND MANAGEMENT

- Planning, Monitoring and Evaluation. - Financial Management - Procurement and contracts supervision - Monitoring of Indicators - Reporting

SECRETARIAT OF SECRETARIAT OF SECRETARIAT OF SECRETARIAT OF PLANNING AND HEALTH EDUCATION TRANSPORT/DFTRANS MANAGEMENT

Implementing Agency for Implementing Agency Implementing Agency Implementing Agency the institutional for the health for the education for the transport component component component component

3. The general mission of the Secretariat for Planning and Management (SEPLAG) is to propose and coordinate overall policy related to strategic, annual and pluri-annual plans, as well as modernization and evaluation of the activities of the administrative organs directly or indirectly subordinated to the Government of Federal District. Specific roles of SEPLAG include, among others: (i) propose policies, guidelines and actions related to acquiring financial and technical resources to implement programs and projects in the Federal District; and (ii) propose, implement and evaluate human resources policies, namely those related to recruitment, selection and training of the staff of the Federal District Government.

4. The general mission of the Secretariat for Education (SEE) is to promote basic education in the Federal District, by improving both teaching and learning, increasing the level of education of the population and providing better teaching conditions through close relation with the community and pedagogical innovation. The most important specific missions of the SEE are to: (i) propose, execute, coordinate and evaluate education public policies, as established in the Educational Plan for the Federal District; (ii) provide basic, secondary and professional education to the population of the Federal District; (iii) supervise public and private educational institutions of the Federal District; (iv) establish guidelines for and supervise the use of public resources by the Federal District educational institutions; (v) detail, when applicable, the way in which rules and regulations established by local and federal authorities are to be enforced; (vi) propose changes in the structure and operation of the education bodies in the Federal District; (vii) sign contracts and agreements for the execution of education policy in the Federal District; and (viii) establish, when deemed necessary, readjustments in the courses contents of the basic, secondary and professional education.

5. The Secretariat for Health (SES) is responsible for the proposal of adequate health policies as well as the planning, coordination and execution of actions for disease prevention and health care, including preparation of health professionals, at all levels, according to the principles and guidelines of the Federal Government, for the purpose of guaranteeing welfare of the population of the Federal District. The Secretariat for Health is also responsible for: (i) proposing the health policy for the Federal District; (ii) planning, organizing and coordinating the execution, supervision and evaluation of the activities of disease prevention and health care; (iii) supervising the operation of private health care providers; (iv) supervising compliance of the regulations by drugstores and control the production and selling of drugs and medicines; (v) supervising the proper handling and selling of food in general; and (vi) performing studies related to disease prevention and health care, including basic research.

6. The main mission of the Secretariat for Transport (SET) is to provide facilities and services for citizens in the Federal District to move around expeditiously, with safety and at the lowest cost possible. The solutions should take into account protection of the environment and integration between the several ways of transportation. The Secretariat is also responsible for: (i) proposing policies and guidelines for the systems of transportation in general; (ii) proposing fare policies for the public transport system; (iii) proposing solutions as well as planning and managing the highway signaling systems; (iv) proposing guidelines for freight transport; (iv) procuring regular public transport services; and (v) proposing guidelines for public transport services and infrastructure. The application of these guidelines in the public bus transport sector is the responsibility of one of its autonomous entities (autarchy), DFTRANS, as described below.

7. DFTRANS is responsible for the applications of the guidelines for the public bus transport system and infrastructure, and is in charge of: (i) planning, managing and supervising the public and private transport services; (ii) assuring that the public transport service is adequately provided with respect, among others, to the following aspects: quality, regularity, efficiency, safety, comfort and reasonable cost to passengers; (iii) enforcing the established operational and technological criteria as well as other guidelines legally established; (iv) applying sanctions and fines resulting from infractions to the existing laws that regulate the public transport system in the Federal District; and (v) establishing and enforcing the regulations

relative to operational aspects of public transport, such as the clearing system for public transport revenues well as the public transportation fund, and managing of such instruments.

8. General project coordination responsibilities will be carried out by the Secretaria Adjunta of SEPLAG, under the guidance of the Secretary. This unit has been strongly involved with project preparation and will continue to act as the primary interlocutor for project implementation. No separate project implementation unit is contemplated. Rather, SEPLAG will take over project coordination and implementation as part of its ongoing responsibilities. It is satisfactorily staffed to coordinate the project and will rely upon other units of the GDF for assistance in specific areas such as procurement, financial management and reporting activities. SEPLAG will also count on the assistance of consultants to be financed under the technical assistance component, to compensate for the lack of government expertise in the Bank’s fiduciary procedures, such as procurement, financial management and safeguards.

9. The Project Coordination Unit in SEPLAG will have, among others, the following responsibilities:

(i) Ensure general coordination among the various involved Secretariats and implementation of the Project activities within the agreed time frame, thus securing compliance with the conditions of the Legal Agreement; (ii) Monitor, evaluate and prepare reports of the activities of the Project within the agreed time frame, including financial and performance reports for purpose of disbursement, as established in the Legal Agreement; (iii) Prepare the procurement plan for the Project, and ensure that procurement is done in accordance with Bank’s rules for SWAp-modality loans, as well as for training and technical assistance; (iv) Hold regular supervision meetings with the Secretariats involved in the implementation of the Project, for follow-up and project implementation monitoring purposes; (v) Ensure that any necessary corrective measures be taken in order to comply with the fiduciary requirements of the loan; and (vi) Host and facilitate Bank supervision missions, and work with the Bank to optimize the results and the impact of such missions.

10. The Planning and Management, Education, Health and Transport Secretariats/DFTRANS will have as specific responsibilities in their respective areas:

(i) Implement the Eligible Expenditures Programs (EEPs) in an efficient manner and within the deadlines established to ensure compliance with the disbursement requirements of each EEP and, at the same time, satisfy the indicators related to disbursements and other monitoring indicators; (ii) Participate in scheduled meetings with the Project General Coordination jointly with the other Secretariats and cooperate effectively with the Project General Coordination by reporting target results as well as identifying any problems that may have negative impact in the outcome of the Project; (iii) Develop the Terms of Reference for specific studies and monitor the procurement and contracting processes; and

(iv) Supervise study preparation as well as the corresponding follow-up activities to ensure implementation of the recommendations resulting from such studies.

11. The Planning and Management, Education, Health and Transport Secretariats/DFTRANS will appoint, within their respective staff members, a representative. This representative will be responsible for project implementation and monitoring of the indicator within the respective area and serve as liaison with counterparts in the Bank and with the Project General Coordination.

12. The GDF prepared a Project Operational Manual (POM) to define roles, responsibilities mechanisms, schedules and accountability arrangements, and ensure timely implementation. The POM includes the detailed description of the Project and its components, expected results and annual indicators, rules to measure such indicators, costs and activities of the Project, the implementation plan as well as all procedures and routines related to procurement, contracting, disbursement, account auditing and Project monitoring and evaluation plans and environmental guidelines. The POM also includes procedures for carrying out Component 1, including financial reporting and disbursement procedures. The Project Operational Manual was agreed with the Bank prior to project Negotiations.

Annex 7: Financial Management and Disbursement Arrangements BRAZIL: FEDERAL DISTRICT MULTISECTOR PUBLIC MANAGEMENT PROJECT

1. A Financial Management Assessment (FMA) of the Brazil: Federal District Multisector Public Management Project was undertaken, in accordance with OP/BP 10.02, and the Financial Management (FM) Practice Manual (issued by the FM Sector Board in November 2005). The objective was to assess the Government of the Federal District – GDF’s capacity to effectively execute the financial management and monitoring of the project. The assessment was based on field work and on an assessment of the state’s public financial management (PFM), based on the PEFA Performance Measurement Framework28. The institutions visited included the Secretariat for Planning and Management (SEPLAG); Secretariat of Finance (SEF); Secretariat of Health (SES); Secretariat of Education (SEE); District Court of Accounts (Tribunal de Contas do Distrito Federal – TCDF), and the Internal Audit Institution (Corregedoria).

2. The GDF has satisfactory financial management arrangements in place to meet Bank’s minimum requirements although the Bank will need to closely monitor the external audit. The Risk Assessment Matrix below presents the potential project FM risks. The residual overall FM risk associated with the Project is rated as moderate. A FM preliminary Action Plan was discussed with the GDF and will be finalized during the first semester of Project implementation. This Plan will be financed by Component 2 to implement selected actions related to the identified opportunities of improvement: (i) inter-institutional coordination capacity; (ii) linkage between pluri-annual plan and annual budget execution; (iii) internal controls, (iv) internal and external audit, (v) off-balance sheet liabilities; (vi) information technology, and (vii) transparency and public dissemination of the GDF accounts.

Financial Management Arrangements

3. Bank financing will support the implementation of the GDF Multi-sector Public Management Program. Fiduciary arrangements for Component 1 include: one initial reimbursement for retroactive financing, followed by six semi-annual reimbursements of actual Eligible Expenditure Programs (EEPs) expenditures in three sectors (Health, Education, Transport), to a bank account indicated by the GDF. In addition to the eligibility of expenditures, Bank reimbursements will also be performance-based, requiring compliance with the PAF indicator, achievement of a 70% budget execution threshold, and the achievement of a set of disbursement-linked indicators. For Component 2, the Bank will make advances to a Designated Account to finance technical assistance expenditures. Both components will use the same IFR as the supporting documentation for withdrawal applications.

28 The Public Expenditure and Financial Accountability (PEFA) Framework, is a financial management diagnostic tool intended to provide an integrated and harmonized approach for measuring and monitoring PFM performance status or/and progress, while also helping focus support on country-led PFM reform programs. PEFA is a partnership between the World Bank, the European Commission, the UK's Department for International Development, the Swiss State Secretariat for Economic Affairs, the French Ministry of Foreign Affairs, the Royal Norwegian Ministry of Foreign Affairs, the International Monetary Fund and the Strategic Partnership with Africa.

4. Component 1 will finance $120 million of Eligible Expenditure Programs (EEP), according to the disbursement schedule included in this section. The EEP mechanism satisfies Bank policy, in particular OP 6.0’s three pillars: (a) expenditures are productive, (b) they contribute to solutions within a fiscally sustainable framework, and (c) acceptable oversight arrangements are in place. Specifically in relation to cost sharing, the GDF has demonstrated ownership and commitment for the multi-sector program, prioritizing these expenditures in the respective multi-year budget. Component 2 will finance 100% of the US$ 9.7 million technical assistance expenditures, including expenditures for studies and expert consultant assistance for PFM modernization.

Allocation of Loan Proceeds Category Loan amount Bank Financing (US$ Component 1: Eligible Expenditures 120,000,000 Up to 45% of Programs amounts spent and reported under the EEPs Component 2: Goods, consultants and 9,675,000 100% non- consultants services Total 129,675,000

Front-end-Fee 325,000

Total Loan Proceeds 130,000,000

5. The Borrower will be the Government of the Federal District – GDF. As indicated in Annex 6, the Project will be jointly implemented by the Secretariat of Planning and Management (SEPLAG) and the Secretariats of Education, Health and Transport/DFTRANS, under the coordination of a program coordination team with guidance and supervision from the Secretary of SEPLAG. The Program Coordination team, within SEPLAG, will carry-out finance and administrative tasks of the project, following GDF policies, practices and procedures. Commitment of expenditures (“empenho”), will be registered in the GDF FM system, SIGGO, by each participating entity, while accounting and disbursement of vendor payments will be carried out by SEF. The current structures of the implementing entities are well staffed with qualified professionals. In order to further strengthen efficiency, the program coordination team will be assigned a financial management specialist/coordinator, a procurement specialist/coordinator and an institutional strengthening specialist/coordinator with experience in the evaluation of results, to support the coordination of the GDF secretariats and agencies participating in the project.

Financial Risk Assessment

6. The Risk Assessment Matrix below presents the potential risks, mitigation measures and residual risk for the program from a financial management perspective. The residual overall financial management risk associated with the project is rated moderate, due to the limited GDF experience with Bank-financed projects, and other identified weaknesses. Improvement opportunities are included in the FM Action Plan. The following will mitigate the

identified risks: (a) increased inter-institutional coordination; (b) review of the internal controls; (c) assignment of an FM coordinator; (d) improvement of the IT systems including capacity and availability; (e) internal and external audit training; (f) preparation of an Operational Manual; (g) training and guidance from the FM, Disbursement and Procurement teams; (g) close supervision by the Bank FM team, and (h) implementation of the agreed FM Action Plan.

Financial Risk Assessment

Risk Risk Risk & Mitigation Measures Residual Rating Risk Inherent Risks Country Level L Brazil’s Federal government system provides reliable information. L Adequate systems exist to manage and track the receipt and use of funds and there is a high level of fiscal transparency, both of which will support any lending program. The risk to both Bank and country funds is low. The government is committed to addressing its PFM weaknesses. Federal FM laws and regulations applicable to sub-nationals provide a strong PFM framework for sub-nationals. Sub-national S Even though there are off-balance sheet liabilities, the accounting system M (state) level and reporting are generally satisfactory. The financial information system used (SIGGO) is acceptable. However, the capacity of the central unit and capacity of the link (internet) is very weak, and the number of computers is inadequate for staff use; many of them are running on old technology and are very slow. The pluri-annual and annual planning and budget quality, IT systems (platform, integration, planning, reporting, internal controls, and internal audit function) are relatively weak. • Implementation of the FM Action Plan Entity Level S Four implementing entities with (i) weak internal controls, (ii) weak M internal audit, and (iii) use of multiple non-integrated IT systems. • Mitigation measures in internal controls and financial reporting below included in the Operations Manual Project Level M Multiple implementing agencies. M • Increased inter-institutional coordination (see financial reporting) Overall M M Inherent Risk Control Risks Budget S Weak pluri-annual and annual planning and budgeting quality. M • Implementation of the FM Action Plan Accounting L Good treasury management and accounting procedures using SIGGO L Internal S Weak internal controls and enforcement to ensure the implementation of M Controls internal auditors’ recommendations. • Assessment of the: o Ex-ante control by the SEF o Ex-post control by the Controladoria/Corregedoria • Implementation of the recommendations of the assessment. Funds Flow M Training to be provided by the Bank FM and disbursement teams will M mitigate weak experience in Bank disbursements. Financial M The GDF uses multiple IT systems for reporting M Reporting • Progress indicators to be included in the IFRs • Address the usefulness of financial reporting by: • Improving communications among project participants; • Producing financial and business information that is relevant, reliable and understandable;

Risk Risk Risk & Mitigation Measures Residual Rating Risk • Including more business-driven information in financial reports; • Promoting the use of the system to enable users to compile their own information. Auditing S The timelines and quality of the external audit reports to be prepared by M the TCDF will be assured by: • Adopting the audit TORs approved by the Bank by Negotiations. • Sending to the Bank the audit report by June 30th of each year, as required by Bank policy. • Providing training to the institution’s auditors. • Following-up on the implementation of significant audit recommendations during semi-annual Bank supervisions and by the GDF’s legislative branch. Overall M M Control Risk

Flow of Funds and Disbursement Arrangements

7. Flow of Funds. Loan proceeds will flow from the loan account to two accounts, as follows (the flow of funds chart below is included in the Project’s Operational Manual): Component 1. SEF will make payments from their own resources to contractors, suppliers and others for eligible expenditures included in the EEPs, as defined in other sections of the PAD, and then submit Reimbursement Withdrawal Applications to the Bank supported by IFRs. Loan funds will flow as reimbursement to a specific account indicated by the GDF. Component 2. Loan funds will be advanced to an account at the BRB bank, in Brasilia, denominated in Reais, in the name of the Secretariat of Finance (SEF). SEF will make payments to contractors, suppliers and others for eligible expenditures from this Designated Account.

8. Disbursement Arrangements. For Component 1, Bank disbursements under the loan will consist of one reimbursement of retroactive EEP expenditures, made during a period not exceeding one year prior to signature of the Loan Agreement, and six reimbursements against actual EEP expenditures. For Component 2 (technical assistance - TA), Bank disbursements will consist of five advances and/or documentation of funds previously advanced, including forecasts of projected expenditures. The first TA advance will be of US$2 million. On effectiveness, two separate Withdrawal Applications will be submitted to the Bank: (i) an application for retroactive financing of EEP expenditures up to US$26.0 million, and (ii) the initial advance to the Designated Account of US$2 million. The payments for EEP expenditures and loan advances for the TA will be documented and reported to the Bank within 45 days after the end of each calendar semester, according to the Project Disbursement Schedule in the Disbursements Letter. Documentation of eligible expenditures will be based on expenditure reports (IFRs), prepared by the Program Coordination Team, which will have access to the financial information of the Secretariats executing the EEPs and the TA activities through SIGGO. The Withdrawal Applications and supporting IFRs should be sent to the Bank no later than February 15 and August 15 of each year.

Flow of Funds

Component 1

GD F S WAP

Counterpart Funds Single Treasury Account SEF – BRB Brasilia (R$) Local Currency Single Treasury Sub-account World Bank SEF – BRB Brasília Reimbursements (R$) for Component 1 (in Reai s)

Withdrawal Payments for Applications supported Investments by IFR (Comp. 1) SEPLAG Project Coordination

Providers of goods and Planni ng, Budgeting and services Procurement Plans Investments, Goods and Services Implementing Agencies

TRANSPORT EDUCATION HEALTH MANAGEMENT

Flow of information, goods and services Flow of funds

Component 2

GDF SWAP

Local Currency Designated Account Wo rld Bank SEF – BRB Brasília (R$)

Disbursements for Component 2, made in Reais

Withdrawal Payments for Applications supported Co mp. 2 by IFR

SEP LAG Project Coordination

Providers of goods and Procurement Plan & Request services of Goods and Services (Technical Assistance) Investments, Goods and Services Implementing Agencies

TRANSPORT EDUCATION HEALTH MANAG EME NT

Flow of information, goods and services Flow of funds

PROJECT DIBURSEMENT SCHEDULE – COMPONENT 1 BRAZIL: FEDERAL DISTRICT MULTISECTOR PUBLIC MANAGEMENT PROJECT

# Type of Disbursement Indicators Date US$M disbursement 1 Retroactive Compliance with PAF as measured by (i) debt/real net income; and (ii) expenditures on Effectiveness 26 financing personnel on December 31, 2008. 70% execution EEPs by sector in July-December 2008. 2 Reimbursement Compliance with PAF as measured by (i) debt/real net income; and (ii) expenditures on IFR 15.5 1st semester personnel on December 31, 2009. February 15, EEP expenditures 70% execution EEPs by sector (first calendar semester after effectiveness). 2010 3 Reimbursement Compliance with PAF as measured by (i) debt/real net income; and (ii) expenditures on IFR August 15.5 2nd semester personnel on June 30, 2010. 15, 2010 EEP expenditures 70% execution EEPs by sector (second calendar semester after effectiveness). Compliance with the following Disbursement Indicators covering the calendar year 2009 (January – December): 10 signed annual performance agreements defining Secretariat/agency performance targets. SEPLAG publishes a technical evaluation of 1 performance report. Increase access to early childhood programs for children ages 4 to 5 in low-income areas by 3%. Decrease the number of students with overage distortion rate in basic education (grades 1-9) to 67,000. Decrease the number of students with overage distortion rate in secondary education to less than 18,000. Implement a full-time school program (Tempo Integral) in 50 schools located in low- income areas. Provide the Health Card to 30% of DF population. Cover 20% population by the Family Health Program. Cover 75% pregnant women with at least 4 prenatal visits in Brazlândia, Paranoá, Riacho Fundo and Samambaia. DFTRANS updates the database with secondary operational and fare revenue data of the basic bus service on a daily basis. Contract for the implantation of the CCO awarded.

PROJECT DIBURSEMENT SCHEDULE – COMPONENT 1 BRAZIL: FEDERAL DISTRICT MULTISECTOR PUBLIC MANAGEMENT PROJECT

# Type of Disbursement Indicators Date US$M disbursement 4 Reimbursement Compliance with PAF as measured by (i) debt/real net income; and (ii) expenditures on IFR 15.5 3rd semester personnel on December 31, 2010. February 15, EEP expenditures 70% execution EEPs by sector (third calendar semester after effectiveness). 2011 5 Reimbursement Compliance with PAF as measured by (i) debt/real net income; and (ii) expenditures on IFR August 15.5 4th semester personnel on June 30, 2011 15, 2011 EEP expenditures 70% execution EEPs by sector (fourth calendar semester after effectiveness). Compliance with the following Disbursement Indicators covering the calendar year 2010 (Jan 1 – Dec 31): 21 signed annual performance agreements defining Secretariat/agency performance targets. SEPLAG publishes a technical evaluation of 10 performance reports. Increase access to early childhood programs for children ages 4 to 5 in low-income areas by 8%. Decrease the number of students with overage distortion rate in basic education (grades 1-9) to 42,000. Decrease the number of students with overage distortion rate in secondary education to less than 15,000. Implement a full-time school program (Tempo Integral) in 70 schools located in low- income areas. Provide the Health Card to 40% of DF population. Cover 30% population by the Family Health Program. Cover 78% pregnant women with 4 prenatal visits in Brazlândia, Paranoá, Riacho Fundo and Samambaia. DFTRANS directly accesses the primary operational and fare revenue data of the basic bus service. 100% of the infrastructure for the CCO installed.

PROJECT DIBURSEMENT SCHEDULE – COMPONENT 1 BRAZIL: FEDERAL DISTRICT MULTISECTOR PUBLIC MANAGEMENT PROJECT

# Type of Disbursement Indicators Date US$M disbursement 6 Reimbursement Compliance with PAF as measured by (i) debt/real net income; and (ii) expenditures on IFR 15.50 5th semester personnel on December 31, 2011. February 15, EEP expenditures 70% execution EEPs by sector (fifth calendar semester after effectiveness). 2012 7 Reimbursement Compliance with PAF as measured by (i) debt/real net income; and (ii) expenditures on IFR August 16.50 6th semester personnel on June 30, 2012. 15, 2012 EEP expenditures 70% execution EEPs by sector (sixth calendar semester after effectiveness). Compliance with the following Disbursement Indicators covering the calendar year 2011 (Jan 1 – Dec 31): 26 signed annual performance agreements defining Secretariat/agency performance targets. SEPLAG publishes a technical evaluation of 21 performance reports. Increase access to early childhood programs for children ages 4 to 5 in low-income areas by 13%. Decrease the number of students with overage distortion rate in basic education (grades 1-9) to less than 17,000. Decrease the number of students with overage distortion rate in secondary education to less than 3,000. Implement a full-time school program (Tempo Integral) in 100 schools located in low- income areas Provide the Health Card (Cartão de Saúde do Cidadão) to 50% of DF population. Cover 40% population by the Family Health Program. Cover 80% pregnant women with at least 4 prenatal visits in Brazlândia, Paranoá, Riacho Fundo and Samambaia. DFTRANS processes primary operational and fare revenue data on a daily basis. 10% of the fleet of basic bus service remotely monitored through the CCO. TOTAL 120.00

9. The limits of each reimbursement are indicated in the table below. Recovery of undisbursed amounts from previous periods will be additional to those amounts. In case of better project performance than expected – compliance with PAF, 70% or more of EEP execution by the three sectors, and early achievement of DLIs - disbursement requests could exceed the ceilings indicated in the table below and in the Disbursement Letter. The improved performance should be reflected in the IFRs submitted to the Bank in August of each year. The annual technical audit and a supervision mission will review project implementation and achievement of project indicators prior to disbursement.

Project Disbursements by Semester

Period Total Budget Bank % US$M Financing 1 2008-S2 & 2009-S1 84.50 26.00 38.8 2 2009-S2 50.37 15.50 30.8 3 2010-S1 50.37 15.50 30.8 4 2010-S2 50.37 15.50 30.8 5 2011-S1 50.37 15.50 30.8 6 2011-S2 50.37 15.50 30.8 7 2012-S1 53.65 16.51 30.8 390.00 120.00 30.8 Tec. Ass. 9.675 9.675 100.0 FEFee 0.325 0.325 100 400.00 130.00 32.5 Note: These percentages are indicative and may change during project implementation

10. In accordance with normal Bank procedures, disbursements will be for eligible expenditures incurred or to be incurred under the program. Eligible Expenditures Programs are included in Annex 5 and in the Loan Agreement. Disbursements will be made along the following lines:

• The first reimbursement immediately after project effectiveness will be made against payments the GDF has made for actual EEP expenditures, before the signing of the Loan Agreement, and a separate advance of US$2 million for the technical assistance component; • The subsequent six disbursements will consist of reimbursements against payments the GDF has made for actual EEP expenditures during the previous semester (Component 1); and advances against budgeted semi-annual technical assistance expenditures, for the upcoming calendar semester and a documentation of the advances previously made (Component 2); • A 70% budget execution threshold, the PAF Indicator, and the disbursement indicators should be met by each sector for all disbursement to take place, as follows: o The GDF has to comply with both measures of the Pluri-Annual Financing Plan - PAF (financial debt/real net income ratio, and ceiling for expenditures on personnel), in the previous semester.

o Each participating sector (Education, Health and Transport), must spend at least 70% of the budgeted funds in each sector, as initially projected in the annual budget (LOA), during the previous semester. o Disbursement-linked indicators for public sector management, education, health and transport have to be achieved. • Decisions on whether progress on indicators is satisfactory for the purpose of disbursement will be based on the analysis of the GDF reports and supporting information presented to the Bank, and Bank verification of the findings presented in these reports. • The advances/disbursements for the TA component could be reduced, considering the variations between projected and actual expenditures during the previous semester.

Component 1: GDF Program and Loan Financing

Semi-Annual Program Implementation (US$) 90.00 80.00 70.00 60.00 50.00 40.00 30.00 20.00 10.00 - 1234567 Program Bank Financing

Component 1. Semi-annual and cumulative disbursements

SWAP Disbursement Curve (US$ million) 30.00 140.00

25.00 120.00

100.00 20.00 80.00 15.00 60.00 10.00 40.00

5.00 20.00

- - 1234567

Semi-annual Disb Accum. Disb.

Project Disbursement Penalties and Awards

PAF EEPs DLIs Disbursement 1 Does not NA NA No disbursement comply 2 Complies Executes 70-100% of 3 Achieves all DLIs 100% planned amount sector EEPs 3 Complies Executes 70-100% of 3 Achieves 9 out of 100% planned amount sector EEPs 11 DLIs minus $2 million 4 Complies Executes 70-100% of all 3 Does not achieve 100% planned amount sector EEPs any of the 11 DLIs minus $11 million 5 Complies Executes 70-100% in 2 Achieves all DLIs 80% planned amount sectors and 50% in Reduction = ((100%-50%) Education sector x 40%) = 20% 6 Complies Executes 70-100% in 1 Achieves all DLIs 69% planned amount sector (Health) and 55% Reduction = ((100%-55%) in Education Sector and x 40%)+ ((100%-35%) x 35% in Transport sector 20%) = 18%+13% =31%

7 Complies Executes 50% in Achieves all DLIs 42% planned amount Education sector, 40% in Reduction = ((100%-50%) Health sector, and 30% in x 40%)+ ((100%-40%) x Transport 40%)+ ((100%-30%) x 20%)= 20%+24%+14% =58% 8 Complies Executes 50% in Achieves 9 out of 42% minus $2 million Education sector, 40% in 11 DLIs Health sector, and 30% in Transport 9 Complies Executes 70%-100% of Achieves better 100% of planned amount all 3 sector EEPs DLIs than expected 10 Complies Executes over 100% of all Achieves all DLIs 100% of planned amount 3 sector EPPs and 3 by the values + $3 million of the subsequent semester 11 Complies Executes 70% of all 3 Achieves all DLIs 100% planned amount for sector EEPs of the of the respective the respective semester respective semester semester and and subsequent subsequent semesters(s) semester(s)

Education = 40% of program and loan proceeds = US$176 m and $48 million total Health = 40% of program and loan proceeds = US$176 m and $48 million total Transport = 20% of program and loan proceeds = US$88 m and $24 million total

11. Awards and Penalties. Awards, penalties and penalties’ recoveries will be calculated automatically and reflected in the IFRs, increasing or reducing the disbursement by sector. Awards for better than expected performance, and penalties for slower project implementation are included in the previous table, and described in detail in the Disbursement Letter along the following lines:

Awards • In the event that the GDF accelerates project implementation by increasing the EEP execution to more than 100% for all sector EEPs and achieves certain of the DLIs earlier than expected, while complying with the PAF Indicator, then the Bank may increase the maximum amount of the third and fifth disbursements. • In the event that the GDF accelerates project implementation by meeting the 70% Rule Indicator for all sector EEPs and achieves all of the DLIs earlier than expected, while complying with the PAF Indicator, then the Bank may increase the maximum amount of the third and fifth disbursements as well. Penalties • If the PAF Indicator is not met, no disbursement will take place for the semester. The corresponding disbursement will be postponed until the indicator is achieved in a manner satisfactory to the Bank. • If the 70 percent rule is not met, then the amount of the disbursement will be reduced pro- rata per each sector that has not reached the 70% budget execution threshold. The disbursement will be reduced in proportion to the actual degree of execution of the EEP’s for each failed sector only, taking into account the fixed ratio per sector of 40% for the Education sector, 40% for the Health sector and 20% for the Transport sector. • If disbursement-linked indicators are not attained by the third, fifth and seventh disbursement, disbursements will be reduced by the sum of US$ 1 million per indicator not reaching the agreed level. The GDF will prepare a time-bound action plan to achieve the DLI(s) in a manner satisfactory to the Bank. When satisfied that the DLI(s) have been complied with and/or the action plan has been implemented, the amount by which the corresponding disbursement had been reduced will be added to the immediately subsequent withdrawal.

Financial Reporting

12. Financial reports will show achievement of the PAF indicator, the 70% budget execution threshold and DLIs. EEP expenditures will be reported in the IFRs by sector, budget line and activity. The TA expenditures will be reported by category of expense. The Secretariat of Finance Accounting Department is able to generate IFRs, and an appropriate format for the required reports was agreed by Negotiations. The format of the project interim financial reports (IFRs) follows the format of the existing government reporting to the extent possible. The IFRs can be adjusted during implementation in a manner satisfactory to the Bank. The IFR model is attached to the minutes of Negotiations and included in the Operational Manual. It includes the following sections:

IFR 1. Sources and Uses of Funds, by sector for the EEP and TA components by category, respectively; cumulative (project-to-date; year-to-date) and for the last

calendar semester, and forecasts for the upcoming calendar semester (for disbursement purposes). IFR 2. Use of Funds by project components (by sector and budget line), cumulative (project-to-date; year-to-date) and for the period, showing budgeted amounts versus actual expenditures, (i.e., documented expenditures), including a variance analysis. IFR 3. PAF Indicator, 70% budget execution threshold, and disbursement-linked indicators for the sectors.

Accounting Policies and Procedures

13. The DF’s accounting system will be used to record loan proceeds. Loan proceeds transferred to the bank accounts will be recorded and accounted under the budgetary code for receipt of funds from external sources. All project budgeting and accounting transactions will utilize the GDF’s FM systems and therefore all transactions will run through the public state accounting system – SIGGO. All payments will follow the official commitment (empenho) and payment (liquidação) routine. These functions are carried out by the Administration and Finance Department of each spending entity or level of government. Individual project transactions are usually processed through a Work Plan (PT - Programa de Trabalho), which is a cost center specifically designated for the given project, and which will be utilized by the GDF participating entities. All project costs are recorded according to the State Chart of Accounts. Loan proceeds and government funds will be recorded in the project cost center and linked to program expenditures. Each payment will be registered in SIGGO identifying the program, budget lines and activities agreed during project preparation and reflected in the legal agreement.

14. Project financial statements will be prepared semi-annually, utilizing cash-basis accounting. These statements will be prepared in accordance with Brazilian legislation - Law 4.320 and GDF accounting rules and procedures. The Project Operational Manual (POM) includes a detailed description of procedures and guidelines for disbursements, payments, approvals, commitments and payments and will be shared with all the implementing entities.

Safeguard over Assets

15. Based on project design, investment in fixed assets is expected to be relatively high. The GDF will be responsible for the management of these assets. All the fixed assets to be acquired under this project should be registered in the GDF’ fixed assets inventory system. The fixed asset management procedures will be based on national norms. Subsidiary records of fixed assets and stocks should be kept up to date and reconciled with control accounts and periodic physical inventories.

Oversight, Control and Audit

16. Internal Audit: There is no internal audit in GDF Secretariats. The Controladoria under the GDF Corregedoria is responsible for the internal audit function.

17. External Audit: Project annual financial statements are required to be audited by either an acceptable auditing firm or by the GDF Audit Court (Tribunal de Contas do Distrito Federal-TCDF). The first audit is expected to be performed by the TCDF. The decision on the auditor for subsequent years will be made taking into consideration the timely delivery and acceptability of the first audit report. According to the terms of reference, the auditors will be required to issue a single opinion on project’s financial statements, including the fulfillment of the covenants in the Loan Agreement and Bank Procurement Guidelines, within six months after the end of the fiscal year. The auditor will be responsible for preparing a management letter identifying internal control weaknesses for the period audited, and following up in subsequent audits on GDF’s implementation of corrective actions.

18. The second semester’s report (IFR) that will be used for disbursements will also be the project’s annual financial statements, including the notes to the financial statements and information on the PAF Indicator, 70% budget execution threshold, and disbursement-linked indicators. The auditors should have access to all supporting records and make on site examination. As normally done, the auditors will perform at least one interim audit per year to review internal controls and identify areas that require the attention of the project’s management. After each interim visit, a memorandum on internal controls (management letter) will be produced to ensure that corrective actions are addressed on a timely basis. A copy of the memorandum will be sent to the Bank by year-end. The audit terms of reference will seek assurance that the expenditures paid with Bank financing were eligible, and in compliance with the Bank financing percentage.

Financial Management Supervision

19. During the first year of implementation, Bank FM supervision will be carried out at least twice. Supervisions will review GDF actions agreed to in signed aide memoires, progress in the implementation of the FM Action Plan and other controls and transactions, as appropriate. This will be complemented by desk reviews of the semi-annual IFRs and annual audit report. The frequency of Bank FM supervision will be reviewed annually. The period prior to project closing will be monitored closely to ensure that expenditures are not incurred after the closing date. Interim visits may also be needed to follow up on desk reviews. Year-one supervision will focus on GDF preparation of IFRs, including the calculation of the PAF Indicator, 70% budget execution threshold, and disbursement-linked indicators for the sectors, implementation of the FM Action Plan and the technical assistance program, as well as performance of the external audit. As a result of the FM and PEFA assessments, the FM Action Plan below aiming at strengthening institutional capacity was agreed with the GDF. The Action Plan activities are included in the Technical Assistance component. Important guidelines for Financial Management are included in the Operational Manual. The financial management team will visit the project prior to effectiveness and confirm that financial management capacity continues to be in place and the Operational Manual can be effectively implemented. Items in the FM Action Plan are not expected to require effectiveness conditions.

Financial Management Action Plan Activity Responsible Target Date Status

Operations Manual Satisfactory Operations Manual including institutional GDF By Negotiations Accomplished arrangements, flow of funds design, staff functions, accounting policies and procedures, basis of accounting, chart of accounts tailored to include project components if needed, disbursement categories and financing source, internal controls, segregation of duties, fixed assets and records management procedures. Financial Reporting and Monitoring Satisfactory IFR format and procedures for data GDF By Negotiations Accomplished collection and report generation External Audit Satisfactory Audit TORs GDF By Negotiations Accomplished

Appointment of external auditor GDF Within 3 months after effectiveness Follow-up of the implementation of audit GDF Yearly recommendations will be performed by the GDF’s Legislative legislative branch (assuming the audit is performed by the TCDF) and reviewed by the Bank. Internal Controls Assessment of the: GDF First year of project • Efficiency of the GDF Internal controls; implementation • Ex-ante control by the SEF; • Ex-post control by the Controladoria/Corregedoria Second year of Implementation of the assessment’s recommendations implementation Technical Assistance Plan for increasing the Corregedoria’s internal controls GDF First semester of and audit capacity. implementation Plan for increasing the SEFAZ’s institutional capacity. GDF First semester of implementation Training in the following areas: international internal GDF First year of project control standards, performance auditing, risk assessment, implementation etc. Process review and strengthening of internal controls in priority areas such as personnel records and payroll in the education sector. Strengthening of SEPLAG monitoring and evaluation GDF Second year of capabilities implementation Prepare an Integrated Financial Management GDF Third year of Information System - IFMIS strategic plan. Provide implementation financial and technical training and TA to GDF management and AGEMTI in the evaluation of alternative strategies to update the SIGGO and SIGRH information system platforms.

Annex 8: Procurement Arrangements BRAZIL: FEDERAL DISTRICT MULTISECTOR PUBLIC MANAGEMENT PROJECT

1. Procurement for the proposed project will be carried out in accordance with the World Bank’s "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004 and revised on October 2006; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004 and revised on October 2006, and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. Given the nature of the program, since funds flow to the Treasury and there is no program incrementality, it has been determined that no procurement plan will be required for the Component 1 expenditures, except for goods and works above the prior review thresholds and consulting services with firms above US$100,000. Procurement under each of the Eligible Expenditure Programs may be done following the procurement methods as defined in the Brazilian procurement law but subject to caveats below and reiterated in the Loan Agreement. The Procurement Capacity Assessment of the Implementing agencies, the Country Procurement Assessment Review and the assessment of the ongoing Bank operation Brasilia Sustentável (loan 7326-BR), confirm that the Government is capable of carrying out procurement satisfactorily for this operation. It is also worth noting that the project will fund a significant state procurement reform addressing key areas identified during the self evaluation of the state procurement systems through the application of the OECD indicators29.

2. For each contract to be financed under the TA component of the Loan, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the GDF and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

3. Procurement of Works. The project will include minor works in schools and health centers. In the education sector, the project will support the refurbishing of schools. The nature of the activities is facility improvement (electrical, plumbing, roof) and enlargement of classrooms. In the health sector, the project will support refurbishing of existing facilities (electrical, plumbing, roof) and enlargement of facilities for immunization, consultations and doctors quarters. Procurement of works will be done using the Bank’s Standard Bidding Documents (SBD) for all ICB, and National SBD agreed with or satisfactory to the Bank for all NCB. Under the SWAp component, up to the NCB threshold of US$20 million, works may be procured in accordance with the following procurement methods and the respective thresholds as

29 Under the auspices of the joint World Bank and OECD Development Assistance Committee (DAC), developing countries and bilateral and multilateral donors worked together to develop a set of tools and standards that provide guidance for improvements in procurement systems and the results they produce. The OECD indicators are intended to provide harmonized tools for use in the assessment of procurement systems. The methodology for application of the indicators has been designed to enable a country to conduct a self-assessment of its procurement system to determine strengths and weaknesses, or to help development agencies carry out joint or external assessment of a country's procurement system. The information resulting from an assessment supports the design of harmonized capacity development and reform initiatives intended to address weaknesses associated with the procurement system. The assessment provides the country with information it can use to monitor the performance of its system and the success of the reform initiatives in improving performance.

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provided for under law 8.666: “convite”; “tomada de preços” and “concorrência”. All contracts estimated to cost more than US$10 million equivalent per contract will be subject to prior review by the Bank.

4. Procurement of Goods. Goods procured under this project will include hardware and software, PCs, laptops, servers, school materials, audio and video equipment, books, hospital equipment materials, etc. Procurement will be done using the Bank’s SBD for all ICB, and National SBD agreed with or satisfactory to the Bank for all NCB. Under Component 1, goods up to the NCB threshold of US $5 million may be procured in accordance with the following procurement methods and the respective thresholds ,as provided for under law 8.666: “convite”; “tomada de preços” and “concorrência”. Procurement of goods up to the NCB threshold may also be carried out in accordance with the method known as “pregão eletrônico”, as provided in the Brazil’s Pregão Law No. 10,520, of July 17, 2002, under COMPRASNET, the procurement portal of the Federal Government, or any other e-procurement system approved by the Bank, for contracts estimated to cost less than $5 million. All contracts estimated to cost more than US$1 million equivalent per contract will be subject to prior review by the Bank.

5. Procurement of non-consulting services: Non-consulting services to be procured under the project include: training logistics (hotel services, catering, travel services, printing services), workshops, seminars, events, etc. Under Component 1, non-consulting services up to the NCB threshold of US $5,000,000 may be procured in accordance with the following procurement methods and the respective thresholds as provided for under law 8.666: “convite”; “tomada de preços” and “concorrência”. Procurement of non-consulting services up to the NCB threshold may also be carried out in accordance with the method known as “pregão eletrônico”, as provided in the Brazil’s Pregão Law No. 10,520, of July 17, 2002, under COMPRASNET, the procurement portal of the Federal Government, or any other e-procurement system approved by the Bank, for contracts estimated to cost less than $5 million. All contracts estimated to cost more than US$1 million equivalent per contract will be subject to prior review by the Bank.

6. Selection of Consultants. Consulting services from firms and individuals required for the project include: impact evaluation of the results agreements between the governor and sector secretariats and agencies, evaluation of the shared education program in education, evaluation of the OS performance in the management public services, including of the Santa Maria Hospital, development of a costs system for education, health, transport and security, monitoring and update of the health data base for cancer control, development of the foundations for public transport fare integration, and integration of the e-procurement system with the budget/financial and assets control state’s systems. Short lists of consultants for services estimated to cost less than $500,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. Services of consulting firms and individual consultants under Component 1 of the Project, estimated to cost less than $100,000 and $50,000 equivalent, respectively, may be procured in accordance with the methods of “técnica e preço” and/or “melhor técnica” as provided for in the Procurement Law No. 8666, of June 21, 1993, as amended to the date of this Agreement. All contracts estimated to cost more than US$200,000 equivalent per contract will be subject to prior review by the Bank.

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Prior Review and Procurement Method Thresholds Component 1 (SWAp) Expenditure Contract Procurement Processes subject to prior review category value method threshold US$ 000 Works ≥ 20,000 ICB All processes < 20,000 NCB All processes above US$10,000,000 Goods ≥ 5,000 ICB All processes < 5,000 NCB All processes above US$1,000,000 Non- ≥ 5,000 ICB All processes consulting < 5,000 NCB All processes above US$1,000,000 services Consulting ≥ 200 QCBS/QBS The first process under each selection method and (firms & < 200 ≥ 100 LCS/CQS all processes above US$200,000 individuals) < 100 “técnica e preço” and/or “melhor técnica” as provided for in the Individual < 50 Procurement Law No. 8666 consultants Direct All cases regardless of the amounts involved contracting Agreements All cases regardless of the amounts involved Component 2 (TA) Expenditure Contract Procurement Processes subject to prior review category value method threshold US$ 000 Goods ≥ 5,000 ICB All processes < 5,000 ≥ NCB First process and all processes above 100 US$1,000,000 < 100 Shopping First process. Non- ≥ 5,000 ICB All processes consulting < 5,000 ≥ NCB First process and all processes above services 100 US$1,000,000 (incl. training, First process communicatio < 100 Shopping n) ≥ 200 QCBS/QBS All processes Consulting < 200 ≥ 100 (firms) < 100 LCS/CQS First process under each selection method.

Individual Section V in the consultants Guidelines Direct All cases regardless of the amounts involved contracting Agreements All cases regardless of the amounts involved

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7. A Procurement Plan is required for ICB and NCB above the prior review thresholds as well as for consulting firms above US$100,000 under Component 1; and for all technical assistance under Component 2. In respect of all other expenditures subject to procurement processes, the Bank will carry out post review of program-related documentation and contracts, as part of normal supervision.

8. Operating Costs. Operating costs will include staff related expenses, supplies, and miscellaneous expenses. The operating costs to be financed by the project will be procured using the implementing agency’s administrative procedures which were reviewed and found acceptable to the Bank.

9. Others. The need for special arrangements regarding engaging universities, government research institutions, public training institutions, NGOs or other types of organizations was not identified during project preparation. The need for special arrangements for scholarships, grants, etc, was not identified during project preparation. The procurement procedures and standard bidding documents to be used for each procurement method, as well as model contracts for works and goods procured, are included in the project’s Operations Manual.

10. Anti-Corruption Clause. All bidding documents and respective contracts regardless of the procurement method (8.666 or Bank guidelines), are required to include the anticorruption (A/C) clause in the bidding documents and the contract as a condition for eligibility of expenditures.

Procurement Capacity Assessment

11. The overall project risk for procurement is average. An assessment of the capacity of the implementing agencies to implement procurement for the project was carried out in May 2008. It included organizational aspects, staff skills, quality and adequacy of supporting and control systems and suitability of the laws, rules and regulations applicable to the agency. While the sector secretariats in the GDF are responsible for providing costs estimates, technical specifications, terms of reference and carrying out contract administration, procurement of Goods and Services is centralized in the Central Bidding Committee (CBC) under SEPLAG. Although procurement of works is not fully centralized, nearly 90% of GDF’s works procurement is carried out by the Secretariat of Works through NOVACAP. It has been confirmed that goods and services will be procured through the CBC and works by the Secretariat of Works through NOVACAP. Eventually, if the Secretariats of Health and Education and DFTRANS carry out procurement of works themselves under the Eligible Expenditure Programs, they will have to be assessed as well.

12. CBC has good procurement capacity, organizational structure and sound systems. The procurement capacity of NOVACAP was already assessed for the Brasilia Sustentável project, 7326-BR. As it is currently performing well, no formal capacity assessment was required for NOVACAP. The GDF uses the “e-compras” procurement system developed by the government, which is considered a very good system. The only weakness identified with this system is the lack of statistics and management reports and the need to become integrated with the budget and financial state’s systems. These issues are expected to be addressed by Component 2.

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13. The key issues and risks concerning procurement for implementation of the project have been identified and an action plan agreed in order to mitigate said risks, as indicated below. Implementation of the Procurement Action Plan is a monitoring indicator under the project.

Procurement Plan

14. The GDF developed a procurement plan for implementation of Component 2. This plan has been agreed between the GDF and the Bank on February 3, 2009, is included in the POM, and is available at GDF.30 It will also be available in the project’s database and in the Bank’s external website. The Procurement Plan will be updated in agreement with the Bank annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

Procurement Action Plan Institutional strengthening in GDF Responsibility Time frame

Structure e-compras as a web based unified Procurement Portal to SEPLAG/SEF TOR By 1st include goods, services and works under all procurement categories. semester of The system should allow the generation of reports that monitor the project procurement performance indicators. implementation

Integrate the Financial /accounting /budgeting system (SIGGO) with SEPLAG/SEF TOR By 1st the e procurement system and the assets control system. semester of project implementation

Develop and implement a permanent training program and a SEPLAG/SO certification/qualification system for procurement staff.

Project specific Action Plan (Component 2) Responsibility Time frame

Prepare a procurement plan for the first 12 months of project SEPLAG By Negotiations implementation.

Hire a consultant with knowledge and experience in WB procurement SEPLAG TOR by guidelines and procedures to assist in the implementation of Negotiations component 2.

Add a procurement section in the operations manual covering all SEPLAG By Negotiations procurement methods including those acceptable to the WB in law 8.666

15. The Procurement Action Plan was discussed with GDF and will be finalized during the first semester of Project implementation. This Plan will be financed by Component 2.

30 Palacio do Buriti, Eixo Monumental, Brasilia – DF HTTP://www.df.gov.br/

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Procurement Supervision

16. In addition to the prior review to be carried out by the Bank, the capacity assessment of the Implementing Agency suggests the need for yearly supervision missions to visit the field to carry out post review of procurement actions. A yearly external procurement audit satisfactory to the Bank will be a covenant in the Loan Agreement, and will be required to assess and verify compliance with the local law of a sample of processes procured from the pool of funds. This audit will focus on local procurement methods. As a result of the post reviews and external procurement audits, the Bank will be in a position to identify cases of noncompliance and apply the remedies provided for in the loan agreement. The Bank will declare misprocurement in any misprocured contract funded by the whole pool of funds, and will have the option of canceling from its loan (or requesting reimbursement of) an amount equivalent to the contract amount multiplied by the Bank’s percentage participation in the pool of funds. To mitigate the inherent risk of the operation and the corresponding use of country systems, a series of performance indicators to be applied during post reviews and/or supervision missions was agreed. These indicators will help identify areas of high risk and issues that required special attention.

Proposed Project Performance Indicators for Procurement Average # of days between advertising and bid opening. Average # of days between bid opening and contract award. Average # of bids/proposals received under each procurement method. Percentage of rejected bids/offers in each process. Number of direct contracts (“dispensa de licitação” and “inexeqüível”) % in relation to # of processes % de variation between estimated value and actual contract amounts.

Details of the Procurement Arrangements Involving International Competition

Goods, Works, and Non Consulting Services

(a) List of contract packages to be procured following ICB and direct contracting: 1 2 3 4 5 6 Contract Estimated Procurement Domestic Review Expected (Description) Cost Method Preference by Bank Bid-Opening (US$) (yes/no) (Prior / Date Post) Hospital equipment 19 million ICB No Prior CCO 16 million ICR No Prior

(b) ICB contracts for Goods and non-consulting services estimated to cost above US $1 million per contract and all direct contracting will be subject to prior review by the Bank.

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(c) ICB contracts for Works estimated to cost above US $10 million per contract and all direct contracting will be subject to prior review by the Bank.

Consulting Services

(a) List of consulting assignments with short-list of international firms. 1 2 3 4 5 Description of Assignment Estimated Selection Review Expected Cost Method by Bank Proposals 1,000 (Prior / Submission Post) Date Impact evaluation of the Results 600 QCBS Prior Agreements between the governor and sector secretariats and agencies Development of a cost system for 3,000 QCBS Prior education, health, transport and security Integration of the e-procurement 1,000 QCBS Prior system with the budget/financial and assets control state’s systems Impact evaluation of the shared 700 QCBS Prior education program in education Evaluation of the social organization 800 QCBS Prior performance in the management of the Santa Maria Hospital Monitoring and update of the health 720 QCBS Prior data base Integration of the different public 850 QCBS Prior transport modes

(b) Consultancy services (firms) above US$500,000 and all single source selection of consultants will be subject to prior review by the Bank. (c) Short lists composed entirely of national consultants: Short lists of consultants for services estimated to cost less than US$500,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines.

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Annex 9: Economic and Financial Analysis BRAZIL: FEDERAL DISTRICT MULTISECTOR PUBLIC MANAGEMENT PROJECT

1. The project will yield a net present value of benefits, after investment and recurrent costs, of more than US$1,500 million, and produce an internal rate of return (IRR) above 56 percent over a 10-year period. This annex presents the summary results of the cost-benefit analysis of the project, based on the project’s costs and the expected, measurable economic benefits flowing from the successful implementation of the proposed project. In addition to the project cost of US$130 million, the analysis includes the costs of capital and recurrent expenditures related to the expansion and improvement of the district’s activities, once the main project interventions are concluded. The project has education, health and transport targets aiming at increasing expenditure efficiency.

Estimated Costs and Benefits 5 years 10 years NPV (US$ millions) 257.4 1,521.7 IRR 56% Benefit/Cost Ratio 4.5

2. The actions proposed under the project components will produce substantial savings over the medium to long-term, primarily through the following interventions:

Project Interventions Sector Intervention Education Improve promotion rates in fundamental education and secondary education Increase coverage in early childhood programs Decrease number of students with overage distortion Health Increase coverage of Family Health Program (FHP) Increase coverage of Health Card (HC) Increase coverage of prenatal visits Decrease on internment rates of diabetes Transport DFTRANS remotely monitors 10% of the fleet of the basic bus service through the Control Center for Operations (CCO) Increase the regularity index for trip compliance (timetables and itineraries) of operators of the basic bus service to 90% Reduce number of complaints received by DFTRANS regarding compliance with timetables and itineraries to 7,000

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Cost Benefit Analysis

3. The project economic analysis attempts to quantify the education, health and transport gains, and translate these gains into estimates of direct and indirect benefits. The present analysis uses several indicators of the expected savings to the Education and Health care system as proxies to measure the net direct economic benefits of the project. The analysis is based on the following assumptions:

• The specific impact of the intervention is assessed in terms of direct and indirect benefits. Savings are generated both for the government and for individuals. Two scenarios were developed: (i) The “do nothing” case where existing programs are maintained and no new improvements on expenditure efficiency are considered. This scenario mostly assumes baseline data for the indicators considered in the economic analysis; or (ii) Strengthening of the existing programs for improving quality of education, reduction of the current burden of disease, and correction of inefficiencies in the transport sector. Education • Education programs have many associated benefits: increase on earnings for the mothers, decrease on governmental subsidies to children, decrease in violent crime, etc31. In this analysis we consider that each child who joins the education system will produce an increased flow of earnings during their working lifetime due to the new abilities and knowledge acquired. • Increase of promotion rates will produce an increased flow of future earnings to both individuals graduating from basic education and secondary education. Increase on earnings is estimated through the discounted flow of benefits for both groups of students using estimations from Mincer equations applied to microdata on the region of Pernambuco.32 Health • Benefits associated to reduction of diabetes complications and stroke are assumed to be generated both from savings in hospitalizations and from avoided deaths, due to a more efficient treatment at the primary health care level. • Lower hospitalizations from acute respiratory infections (ARI) will produce savings to the MoH due to the avoided costs for the system. • The human capital approach is used to estimate the benefits associated with reduced mortality rates in 4 selected populations (Recanto das Emas, Riacho Fundo, Gama and Santa Maria) • Increased coverage of cervical pap smear in the group of women 25-29 years old is expected to produce savings on avoided hospitalizations due to early detection of pre-

31 Karoly L et al 1998. Investing in Our Children: What We Know and Don't Know about the Costs and Benefits of Early Childhood Interventions. 32 Cost-benefit analysis of the Pernambuco Integrated Development Education Quality Improvement Project. Project Appraisal Document. Washington DC: World Bank.

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cancer lesions and avoided deaths from cervical cancer.33 Almost 70% of invasive cervical cancers in Brazil are attributed to Human Papillomavirus (HPV) 16 or 18. About 17.0% of Brazilian women are estimated to have cervical HPV infection at a given time34 • Finally, the increase on Family Health coverage is expected to contribute to a reduction in the burden of diseases (infectious and parasitic diseases, hypertension, etc.), which otherwise would not be timely treated. Transport • Two direct benefits are considered for the transport sector. The first benefit is associated with the reduction in delayed commutes, and its monetary valuation is made through the estimation of time saved for users. The second benefit is the reduction of waiting times at bus stops, as a consequence of increase in trip compliance as well as the effective supervision of the transport fleet.35

4. NPV of direct benefits for all sectors is estimated at nearly US$1,120 million over a 10 year period. The direct benefits are estimated based on the expected savings to the education system due to the increase in the number of students who graduate from fundamental and secondary education.36 There is also a positive benefit associated to the gains in income that children covered by early childhood programs will be able to get in the long term. On the health sector, direct benefits come from the reductions in hospitalization rates for selected causes (ARI, stroke and diabetes complications), which will be possible as a result of improvements in the coverage of primary health care in the DF.37

Project Direct Benefits - Health and Education Sectors Health Education Transport Avoided hospitalizations Invasive Avoided Hours saved- cervical New children repetitions- Hours saved- reduced Year Diabetes cancer ARI Stroke covered drop outs trip compliance waiting time 2009 0 0 0 0 0 0 0 0 2010 97 26 156 290 8,276 16,358 93,616 140,424 2011 198 30 198 368 8,417 31,968 249,641 374,462 2012 299 33 210 414 8,561 31,987 405,666 608,499 2013 401 37 222 456 8,707 32,006 405,666 608,499 2014 504 41 234 493 8,856 32,026 405,666 608,499 2015 607 47 246 527 9,007 32,045 405,666 608,499 2016 711 52 259 557 9,161 32,064 405,666 608,499 2017 815 59 271 585 9,317 32,084 405,666 608,499 2018 920 66 283 609 9,477 32,103 405,666 608,499 2,0 Total 4,552 391 80 4,299 79,779 272,640 3,182,921 4,774,382

33 Instituto Nacional de Cancer 2008. A reduction of about 80% in cervical cancer mortality may be achieved through screening of women 25-65 years old with a Papanicolau test and treatment of lesions with high malignancy or in situ cancer. 34 WHO/ICO Information Centre on HPV and Cervical Cancer (HPV Information Centre) 2007 Human Papillomavirus and Cervical Cancer. Brazil Summary Report. 35 Data for average number of passengers, number of commutes and other transport statistics are from the Agência Nacional de Transportes Terrestres and the IDB_financed Urban Transportation Program for the Federal District Loan Proposal. 36 Avoided costs to the system were estimated using the student costs provided by the CBA of the Pernambuco project, and adjusted using IPCA. 37 Avoided costs of hospitalization were estimated using the costs provided by the national health service (SUS).

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5. The project indirect benefits were estimated as a result of deaths prevented due to project interventions. Substantial resources will be generated by saving lives of infants, since these individuals will achieve a long term flow of incomes, estimated through the discounted value of GDP per capita. Avoided deaths from diabetes complications, stroke and cervical cancer will also produce an expected flow of income, estimated taking in consideration the average age of death for each of these conditions.

Project Indirect Benefits Health Avoided deaths Invasive cervical Year Diabetes cancer Stroke Infants TOTAL 0 2009 0 0 0 0 0 1 2010 3 26 290 11 330 2 2011 6 30 368 15 419 3 2012 9 33 414 18 474 4 2013 12 37 456 21 526 5 2014 15 41 493 24 574 6 2015 18 47 527 27 619 7 2016 21 52 557 30 661 8 2017 24 59 585 32 700 9 2018 28 66 609 35 737 Total 136 391 4,299 213 5,040

6. Taking into consideration the project budget and the corresponding recurrent costs for guaranteeing the flow of benefits over the life of the project, the NPV of the total investment is estimated at US$653 million.38 The estimate of the present value of the investment and recurrent costs of the proposed project is critical to determine overall net benefit (benefits net of project costs). The present value of the proposed investment is estimated at nearly US$112 million over a three-year period. While the investment costs are clearly defined in the project implementation plan, the recurrent costs are estimated at 10% of the total investment costs during the last 7 years of the project. Annual investment and recurrent costs are shown in table below on the estimated costs and benefits of the project.

Project Investment NPV Bank PV Bank Total Budget PV total budget Financing Financing Total PV total Period (US$M) (US$M) (US$M) (US$M) investment investment 2009 183.1 183.1 58.6 58.6 241.7 241.7 2010 113.8 103.5 37.3 33.9 151.2 137.4 2011 103.1 85.2 34.0 28.1 137.2 113.4 2012 40.0 30.1 40.0 30.1 2013 40.0 27.3 40.0 27.3 2014 40.0 24.8 40.0 24.8 2015 40.0 22.6 40.0 22.6 2016 40.0 20.5 40.0 20.5 2017 40.0 18.7 40.0 18.7 2018 40.0 17.0 40.0 17.0 Total 680.0 532.7 130.0 120.7 810.0 653.4

38 Recurrent costs are estimated in relation to resources to be provided by the Government.

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7. Using the conservative estimates of the current analysis, the stream of benefits yields a net present value in excess of US$1,520 million with an internal rate of return of over 56%. The table below displays the summary results of the quantitative returns of the project. Returns are presented by estimating a 10 year stream of benefits and costs and thereby calculating the Net Present Value and the Internal Rate of Return of the project. It is worth noting that the stream of benefits and costs takes into account the recurrent costs of maintaining the specific programs that will produce the savings.

Cost-Benefit Analysis Direct Indirect Year Costs Benefits Benefits Total Benefits Net benef VP NET BEN 2009 241.7 0.0 0.0 0.0 -241.7 -241.7 2010 151.2 23.9 23.2 47.1 -104.1 -94.7 2011 137.2 99.9 94.4 194.3 57.1 47.2 2012 40.0 178.1 168.1 346.3 306.2 230.1 2013 40.0 258.7 244.5 503.2 463.2 316.4 2014 40.0 263.1 248.8 512.0 472.0 293.0 2015 40.0 267.6 253.2 520.8 480.8 271.4 2016 40.0 272.2 257.7 529.9 489.9 251.4 2017 40.0 276.8 262.3 539.1 499.1 232.8 2018 40.0 281.6 266.9 548.5 508.5 215.6 Total 810.0 1,922.0 1,819.1 3,741.1 2,931.1 1,521.7

Sensitivity Analysis

8. The extent to which project benefits would be affected by delays in implementation or direct reduction in benefits was analyzed. Lower benefits could result from either the selection of poor quality subprojects, resulting in less cost-effective subprojects and fewer savings than expected, or from logistical problems in the project implementation, which would minimize expected benefits. Accordingly, project benefits were estimated assuming a 30 and 50 percent reduction in overall benefits. Under those assumptions, project viability would be affected as indicated in the table below.

Summary of Sensitivity Analysis NPV Type of sensitivity analysis (US$ million) IRR (%) Base Case 1,521.7 56.4% Benefits reductions: 30% reduction in benefits 869.2 40.1% 50% reduction in benefits 434.1 27.0%

Delay in implementation:* 2-year delay 884.5 52.8% 3-year delay 553.1 34.1% *estimated costs during the first 2 or 3 years are based on 1% charge which the Bank assesses as a penalty for non- implementation.

9. Under this scenario, total savings would be affected by a reduction in expected benefits. Assuming total savings were 30 percent lower than expected, the net present value of

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the savings over a 10 year period would be reduced to nearly US$869 million, with a rate of return of about 40 percent; while in the extreme case of 50 percent fewer benefits than expected, the rate of return would decrease to 27 percent, with a net present value of nearly US$434 million. The table above shows that a 3 year delay in project implementation would have a profound effect on the overall returns to the project (reduction of benefits of more than US$1,000 million). In the case of a 2 year delay, project benefits would be reduced by about US$637 million and the rate of return would be reduced from 56 to 53 percent.

Fiscal sustainability

10. The impact of the proposed loan on the estimated public financing for the sectors involved is not very relevant as the table below shows. The higher impact is produced by the loan disbursement on the first year of the project, which represents nearly 14 percent of the estimated public expenditures for the three sectors. Total project costs do not represent more than 1 percent of total public expenditures over the life of the project after loan disbursements come to an end.

Fiscal sustainability

Category 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Health 836.57 899.00 966.09 1,038.18 1,115.66 1,198.91 1,288.38 1,384.53 1,487.85 1,598.88 Education 614.21 628.93 644.01 659.45 675.26 691.45 708.03 725.00 742.38 760.18 Transport 244.20 245.21 246.23 247.25 248.27 249.30 250.34 251.37 252.42 253.46 Total 3 sectors 1,694.98 1,773.15 1,856.33 1,944.89 2,039.19 2,139.67 2,246.75 2,360.91 2,482.65 2,612.53 Total 4,801.26 5,065.12 5,343.49 5,637.15 5,946.96 6,273.78 6,618.57 6,982.31 7,366.04 7,770.86 Loan (US$) 58.63 37.33 34.04 Government (US$) 183.05 113.83 103.12 Total Costs (US$) 241.69 151.17 137.17 40.00 40.00 40.00 40.00 40.00 40.00 40.00 Recurrent costs(US$) 40.00 40.00 40.00 40.00 40.00 40.00 40.00 Total project costs as % expenditures for health, education and transport 14% 9% 7% Loan as % of expenditures for health, education and transport 3% 2% 2% Recurrent expenditures as % of expenditures for health, education and transport 2% 2% 2% 2% 2% 2% 2%

Total project costs as % of total expenditures 5% 3% 3% 1% 1% 1% 1% 1% 1% 1%

Loan as a % of total expenditures 1% 1% 1% Recurrent expenditures as a % of total expenditures 1% 1% 1% 1% 1% 1% 1% Fiscal impact

11. The fiscal impact was estimated based on expected fiscal expenditures and revenues as a result of the project. The following assumptions were used for the model:

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a. Official data from Ministério da Fazenda, Secretaria do Tesouro Nacional, Coordenação- Geral das Relações e Análise Financeira de estados e municipios - from 2001 to 2006 were the basis for estimates of growth rates of main categories of analysis. b. Growth rates for main categories of revenues and expenditures were used to project fiscal behavior for the implementation and amortization periods. c. The category amortization of expenditures was used for repayment of the loan by the GDF from year 2017 to 2031 (repayment includes interests and capital). d. Tax collection grows at the average growth rate estimated from 2001 to 2006. A benefit of the project is a total of 4,303 lives saved. These people will provide additional income from tax payments starting in 2009. e. Loans and advances were estimated according to expected disbursements in the 2009- 2011 period only. f. GDP grows at a rate of 13% (nominal terms, since the purpose of the analysis is to calculate the relative participation of deficit/superavit as a percentage of GDP).

12. The implementation of the project will not raise a fiscal issue for the government of the Federal District, as the table below shows. The results are projected to 2031 to accurately reflect the full repayment of the loan. The trend of the public finances for the period of project implementation does not show any sing of deterioration and presents a continuing superavit, which will not change after disbursements and repayments of the loan are carried out. On these terms, the Government of the Federal District has a great opportunity to fulfill the needs of highly vulnerable groups of people without compromising the fiscal stability of the DF.

Projected fiscal impact of the project (US$ million)

2008 2009 2010 2011 2015 2016 2017 2031 Current Expenditure 3,770 3,846 3,923 4,002 4,335 4,422 4,511 5,964 Capital Expenditure 575 639 712 794 1,238 1,385 1,556 7,749 Amortization 36 34 32 31 26 24 28 12 Other 539 605 679 763 1,212 1,361 1,528 7,737 Total Expenditure 4,345 4,485 4,635 4,796 5,573 5,808 6,068 13,713

Total Revenue 4,783 5,379 6,025 6,836 12,018 13,976 16,284 147,244 Tax 3,851 4,513 5,287 6,195 11,674 13,677 16,025 147,208 Loans and Advances 8 64 41 37 1 0 0 0 Other 924 802 696 605 344 298 259 36

Deficit (-)/superavit (+) 438 835 1,352 2,006 6,444 8,168 10,220 133,526 Overall deficit (- )/superavit (+) as % GDP 1% 1% 2% 2% 5% 5% 6% 14%

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Annex 10: Safeguard Policy Issues BRAZIL: FEDERAL DISTRICT MULTISECTOR PUBLIC MANAGEMENT PROJECT

1. The Project will not support activities that generate environmental impacts of concern. The project’s development objectives are to (i) improve public sector management and accountability; and (ii) increase access, quality and efficiency of fundamental education, primary health care and public transport.

2. In the education sector, the project will support the refurbishing of 52 schools throughout the Federal District. The nature of the activities is facility improvement (electrical, plumbing, roof) and enlargement of classrooms. The objectives are to provide a better teaching environment through the updating and improvement of the physical infrastructure.

3. In the health sector, the project will also support refurbishing of existing facilities in order to provide better service to the DF population. Health sector reforms will focus on facility improvement (electrical, plumbing, roof) and enlargement of facilities for immunization, consultations and doctors quarters. Equipment will also be acquired and include standard portable electrocardiogram and ultrasound machines.

4. While the project will not support activities that generate health care waste, the GDF is aware of the current situation regarding health care waste management in the District. The GDF is interested in tapping into the Bank’s expertise and undertaking strategic assessments of health care waste in DF health care units. It is expected that this exercise will generate recommendations which the GDF will seek to implement. Waste segregation is recognized as being weak and the project will support capacity building and also provide an enabling environment for segregation to occur efficiently.

5. In the transport sector, the project will focus on capacity strengthening and ability to deliver improved public sector planning, management and accountability. There are no environmental impacts envisioned other than a positive outcome due to efficiency gains.

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Annex 11: Project Preparation and Supervision BRAZIL: FEDERAL DISTRICT MULTISECTOR PUBLIC MANAGEMENT PROJECT

Schedule Planned Actual PCN review 01/29/2008 01/29/2008 Initial PID to PIC 10/29/2007 03/21/2008 Initial ISDS to PIC 10/29/2007 03/21/2008 Appraisal 06/02/2008 07/01/2008 Negotiations 02/09/2009 02/10/2009 Board/RVP approval 03/26/2009 Planned date of effectiveness 07/01/2009 Planned date of mid-term review 01/17/2011 Planned closing date 12/31//2012

Key institutions responsible for preparation of the project Dr. Ricardo Pinheiro Penna Palácio do Buriti Secretário de Estado da Secretaria de Planejamento e Eixo Monumental, Brasília – DF Gestão Qng. Área Especial 01, Lote 22 Taguatinga Government of Federal District DF, CEP 72 118 900 HTTP://www.df.gov.br/ Project Preparation Team Members Role GDF IBRD Team Leader João Carlos Quijano Joana Godinho PSM Ceres Alves Prates Jeffrey James Rinne Andréa Fonseca Moreira Pupe Chris Parel Jaqueline Peres Orsi Education Mara Gomes Maria Madalena dos Santos Claudia Rachid Machado Health Dea Mara Tarbes de Carvalho Joana Godinho Inara Bessa de Meneses Elaine Freitas Alves dos Santos Transport Paulo Henrique Munhoz da Rocha Elisabeth Goller André Luis Iris Margalho Felipe Carijó Operations Patricia Macedo Martins Daniela Pena Lima José Jorge Ademildes Dantas Environmental Spec. Gunars Platais Procurement Specialist Artur Paes Wittenberg Luis Prada Renilda Teixeira Vieira Toscanelli Erinaldo Pereira S. Sales Financial Mgmt Spec. Adão Nunes da Silva Nicolas Drossos Maria Cristina Gonçalves Reis Lawyer Ursula Figueiredo Munhoz Mariana Montiel Isabella Micali Drossos Consultores Rodrigo Speziali Rodrigo Briceno Débora Fialho Bais Maria Valeria Pena Cecília Lorena Brady Program Assistant Maria Dulce C. de Castro e Silva Veronica Jarrin Marize de Fátima Santos

Bank funds expended to date on project preparation: 1. Bank resources up to FY09: US$ 335,039.17 2. Trust funds: N/A Estimated Approval and Supervision costs: US$114,000 1. Remaining costs to approval: US$100,000 2. Estimated annual supervision cost: US$ 90,000 (including fixed and variable costs)

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Annex 12: Documents in the Project File BRAZIL: FEDERAL DISTRICT MULTISECTOR PUBLIC MANAGEMENT PROJECT

1. Carta-Consulta 2007

2. GDF 2008. Draft Project Operational Manual

3. GDF 2008. Transport Sector Overview

4. Projeto Básico do Plano Diretor de Transporte Urbano e Mobilidade para o Distrito Federal e seu Entorno, Anexo B, 2005

5. GDF 2007. Plano de Fortalecimento Institucional da Gestão do Transporte Publico Coletivo de Passageiros do Distrito Federal, 2007

6. GDF 2007. Pesquisa de Satisfação do Usuário do Transporte Público do Distrito Federal (May-June 2007)

7. PCN Package January 2008 (PCN, Peer Reviewer Comments, Comments Matrix, Risk Matrix and PCN Note)

8. QER Package Minutes April 2008 (PAD, PID, ISDS, Peer Reviewer Comments, Comments Matrix, Risk Matrix and Minutes)

9. Decision Meeting Package July 2008 (PAD, PID, ISDS, Peer Reviewer Comments, Comments Matrix, Risk Matrix and Decision Note)

10. Negotiations Package July 2008 (PAD, PID, ISDS, Datasheet, draft Loan Agreement and Guarantee Agreement, draft Disbursement Letter, Notice of Invitation to Borrower, Invitation to Borrower, Memo to the Chief Counsel and Clearances)

11. Pena MV 2008. Social and Institutional Assessment

12. Briceno R 2008. Project Economic and Financial Analysis

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Annex 13: Statement of Loans and Credits BRAZIL: FEDERAL DISTRICT MULTISECTOR PUBLIC MANAGEMENT PROJECT

Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d P102818 2009 BR (AF-C) Espirito Santo Wtr & Coastal 71.5 0.00 0.00 0.00 0.00 71.5 0.00 0.00 P111513 2009 BR (APL2) RS SantaMaria Integ. Mun. 13.95 0.00 0.00 0.00 0.00 13.95 0.00 0.00 P110487 2009 BR (AF) Ceara Integ Wtr Res Mgmt 103 0.00 0.00 0.00 0.00 103 0.00 0.00 P111511 2009 BR (APL2)RS Bage Integr. Munic. Dev. 6.6 0.00 0.00 0.00 0.00 6.6 0.00 0.00 P111514 2009 BR (APL2)RS Uruguaiana Int. Mun. Dev. 6.83 0.00 0.00 0.00 0.00 6.83 0.00 0.00 P088716 2009 BR Health Network Formation & Quality 235.00 0.00 0.00 0.00 0.00 235.00 0.00 0.00 P094315 2009 BR Municipal APL4: Sao Luis 35.64 0.00 0.00 0.00 0.00 35.55 0.00 0.00 P099369 2009 BR Ceara Regional Development 46.00 0.00 0.00 0.00 0.00 46.00 0.00 0.00 P104752 2009 BR Paraiba 2nd Rural Pov Reduction 20.90 0.00 0.00 0.00 0.00 20.90 0.00 0.00 P106765 2009 BR Ceara Inclusive Growth (SWAp II) 240.00 0.00 0.00 0.00 0.00 240.00 0.00 0.00 P106767 2009 BR RGS Fiscal Sustainability DPL 1,100.00 0.00 0.00 0.00 0.00 450.00 0.00 0.00 P107146 2009 BR Acre Social Economic Inclusion Sust 120.00 0.00 0.00 0.00 0.00 119.70 0.00 0.00 P110614 2009 BR: Sergipe State Int. Proj.: Rural Pov 20.80 0.00 0.00 0.00 0.00 20.80 0.75 0.00 P088966 2008 BR Municipal APL3: Teresina 31.13 0.00 0.00 0.00 0.00 31.05 0.00 0.00 P095626 2008 BR (APL2)Family Health Extension 2nd 83.45 0.00 0.00 0.00 0.00 83.45 0.17 0.00 APL P094199 2008 BR-(APL) RS (Pelotas) Integr. Mun. Dev. 18.90 0.00 0.00 0.00 0.00 23.15 -7.63 0.00 P089013 2008 BR Municipal APL: Recife 32.76 0.00 0.00 0.00 0.00 32.76 2.92 0.00 P089929 2008 BR RGN State Integrated Water Res Mgmt 35.90 0.00 0.00 0.00 0.00 33.94 8.46 0.00 P101324 2008 BR-Second Minas Gerais Dev't 976.00 0.00 0.00 0.00 0.00 778.56 -195.00 0.00 PArtnership P083997 2008 BR Alto Solimoes Basic Services and Sust 24.25 0.00 0.00 0.00 0.00 24.19 0.00 0.00 P106038 2008 BR Sao Paulo Trains and Signalling 550.00 0.00 0.00 0.00 0.00 454.64 -40.79 0.00 P089011 2007 BR Municipal APL1: Uberaba 17.27 0.00 0.00 0.00 0.00 16.13 4.57 0.00 P082651 2007 BR APL 1 Para Integrated Rural Dev 60.00 0.00 0.00 0.00 0.00 56.14 30.81 0.00 P089793 2007 BR State Pension Reform TAL II 5.00 0.00 0.00 0.00 0.00 4.99 1.83 0.00 P095460 2007 BR-Bahia Integr.Hway Mngmt. 100.00 0.00 0.00 0.00 0.00 95.00 0.87 0.00 P089440 2006 BR-Brasilia Environmentally Sustainable 57.64 0.00 0.00 0.00 0.00 36.22 18.92 0.00 P090041 2006 BR ENVIRONMENTAL SUST. 8.00 0.00 0.00 0.00 0.00 5.79 5.53 0.00 AGENDA TAL P092990 2006 BR - Road Transport Project 501.25 0.00 0.00 0.00 0.00 405.00 228.08 115.41 P093787 2006 BR Bahia State Integ Proj Rur Pov 54.35 0.00 0.00 0.00 0.00 4.82 -6.15 0.00 P082523 2006 BR HD Technical Assistance Loan 8.00 0.00 0.00 0.00 0.00 4.98 4.98 0.00 P081436 2006 BR-Bahia Poor Urban Areas Integrated 49.30 0.00 0.00 0.00 0.00 42.66 38.86 0.00 Dev P052256 2006 BR-MG Rural Poverty Reduction 35.00 0.00 0.00 0.00 0.00 7.33 -2.38 0.00 P050761 2006 BR-Housing Sector TAL 4.00 0.00 0.00 0.00 0.00 3.97 2.80 0.00 P069934 2005 BR-PERNAMBUCO INTEG DEVT: 31.50 0.00 0.00 0.00 0.00 12.89 12.89 0.00 EDUC QUAL IMPR P082328 2005 BR-Integ.Munic.Proj.-Betim Municipality 24.08 0.00 0.00 0.00 0.00 0.80 -1.87 0.00 P076924 2005 BR- Amapa Sustainable Communities 4.80 0.00 0.00 0.00 0.00 3.18 3.18 0.00 P083533 2005 BR TA-Sustain. & Equit Growth 12.12 0.00 0.00 0.00 0.00 9.24 8.68 0.00 P087713 2004 BR Bolsa Familia 1st APL 572.20 0.00 0.00 0.00 2.86 10.86 13.72 0.00

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Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d P083013 2004 BR Disease Surveillance & Control APL 2 100.00 0.00 0.00 0.00 0.00 28.24 28.74 0.00 P060573 2004 BR Tocantins Sustainable Regional Dev 60.00 0.00 0.00 0.00 0.00 29.76 26.76 22.73 P080830 2004 BR Maranhao Integrated: Rural Dev 30.00 0.00 0.00 0.00 0.00 10.80 10.80 0.00 P074777 2003 BR-Municipal Pension Reform TAL 5.00 0.00 0.00 0.00 0.00 2.45 2.45 1.51 P054119 2003 BR BAHIA DEVT (HEALTH ) 30.00 0.00 0.00 0.00 0.00 8.87 8.87 0.00 P049265 2003 BR-Recife Urban Upgrading Project 46.00 0.00 0.00 0.00 0.00 20.99 20.99 20.99 P076977 2003 BR-Energy Sector TA Project 12.12 0.00 0.00 0.00 0.00 7.68 7.68 0.00 P051696 2002 BR SÃO PAULO METRO LINE 4 209.00 0.00 0.00 0.00 0.00 94.76 0.00 0.00 PROJECT P060221 2002 BR FORTALEZA METROPOLITAN 85.00 0.00 0.00 0.00 62.60 18.61 79.10 27.38 TRANSPORT PROJ P066170 2002 BR-RGN Rural Poverty Reduction 22.50 0.00 0.00 0.00 0.00 21.63 -0.81 7.85 P073294 2001 BR Fiscal & Fin. Mgmt. TAL 8.88 0.00 0.00 0.00 0.00 2.70 2.40 2.70 P050772 2001 BR LAND-BASED POVRTY 202.10 0.00 0.00 0.00 44.23 29.60 29.05 19.68 ALLEVIATION I (SIM) P050875 2001 BR Ceara Rural Poverty Reduction Project 37.50 0.00 0.00 0.00 0.00 7.51 -29.99 0.81 P050880 2001 BR Pernambuco Rural Poverty Reduction 30.10 0.00 0.00 0.00 0.63 15.00 -14.37 0.05 P050881 2001 BR BR-PIAUI RURAL POVERTY 22.50 0.00 0.00 0.00 0.00 18.80 -3.70 11.13 REDUCTION P006449 2000 BR CEARA WTR MGT PROGERIRH 136.00 0.00 0.00 0.00 0.00 4.25 4.25 -0.86 SIM P038895 1998 BR FED.WTR MGT 198.00 0.00 0.00 0.00 40.00 46.76 36.76 20.09 P043421 1998 BR RJ M.TRANSIT PRJ. 186.00 0.00 0.00 0.00 0.00 5.03 -38.86 -38.86 Total: 6,114.04 0.00 0.00 0.00 150.32 3,301.62 303.74 210.61

BRAZIL STATEMENT OF IFC’s Held and Disbursed Portfolio In Millions of US Dollars

Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. ABN AMRO REAL 98.00 0.00 0.00 0.00 15.77 0.00 0.00 0.00 2005 2005 ABN AMRO REAL 98.00 0.00 0.00 0.00 15.77 0.00 0.00 0.00 2001 AG Concession 0.00 30.00 0.00 0.00 0.00 30.00 0.00 0.00 2002 Amaggi 17.14 0.00 0.00 0.00 17.14 0.00 0.00 0.00 2005 Amaggi 30.00 0.00 0.00 0.00 30.00 0.00 0.00 0.00 2002 Andrade G. SA 22.00 0.00 10.00 12.12 22.00 0.00 10.00 12.12 2001 Apolo 6.04 0.00 0.00 0.00 3.54 0.00 0.00 0.00 1998 Arteb 20.00 0.00 0.00 18.33 20.00 0.00 0.00 18.33 2006 BBM 49.40 0.00 0.00 0.00 49.40 0.00 0.00 0.00 2001 Brazil CGFund 0.00 19.75 0.00 0.00 0.00 18.15 0.00 0.00

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Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2004 CGTF 54.01 0.00 7.00 65.12 54.01 0.00 7.00 65.12 1994 CHAPECO 10.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 1996 CHAPECO 1.50 0.00 0.00 5.26 1.50 0.00 0.00 5.26 2003 CPFL Energia 0.00 40.00 0.00 0.00 0.00 40.00 0.00 0.00 1996 CTBC Telecom 3.00 8.00 0.00 0.00 3.00 8.00 0.00 0.00 1997 CTBC Telecom 0.00 6.54 0.00 0.00 0.00 6.54 0.00 0.00 1999 Cibrasec 0.00 3.27 0.00 0.00 0.00 3.27 0.00 0.00 2004 Comgas 11.90 0.00 0.00 11.54 11.90 0.00 0.00 11.54 2005 Cosan S.A. 50.00 5.00 15.00 0.00 50.00 5.00 15.00 0.00 Coteminas 0.00 1.84 0.00 0.00 0.00 1.84 0.00 0.00 1997 Coteminas 1.85 1.25 0.00 0.00 1.85 1.25 0.00 0.00 2000 Coteminas 0.00 0.18 0.00 0.00 0.00 0.18 0.00 0.00 1980 DENPASA 0.00 0.52 0.00 0.00 0.00 0.48 0.00 0.00 1992 DENPASA 0.00 0.06 0.00 0.00 0.00 0.06 0.00 0.00 Dixie Toga 0.00 0.34 0.00 0.00 0.00 0.34 0.00 0.00 1998 Dixie Toga 0.00 10.03 0.00 0.00 0.00 10.03 0.00 0.00 1997 Duratex 1.36 0.00 3.00 0.57 1.36 0.00 3.00 0.57 2005 EMBRAER 35.00 0.00 0.00 145.00 35.00 0.00 0.00 145.00 1999 Eliane 14.93 0.00 13.00 0.00 14.93 0.00 13.00 0.00 1998 Empesca 1.33 0.00 2.67 0.00 1.33 0.00 2.67 0.00 2006 Endesa Brasil 0.00 50.00 0.00 0.00 0.00 50.00 0.00 0.00 2006 Enerbrasil Ltda 0.00 5.50 0.00 0.00 0.00 0.00 0.00 0.00 2006 FEBR 12.00 0.00 0.00 0.00 12.00 0.00 0.00 0.00 2000 Fleury 0.00 0.00 6.00 0.00 0.00 0.00 6.00 0.00 1998 Fras-le 4.00 0.00 9.34 0.00 4.00 0.00 6.04 0.00 2006 GOL 50.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2005 GP Capital III 0.00 14.00 0.00 0.00 0.00 0.14 0.00 0.00 GP Cptl Rstrctd 0.00 2.22 0.00 0.00 0.00 2.16 0.00 0.00 2001 GPC 0.00 0.00 9.00 0.00 0.00 0.00 9.00 0.00 GTFP BIC Banco 44.91 0.00 0.00 0.00 44.91 0.00 0.00 0.00 GTFP BM Brazil 4.22 0.00 0.00 0.00 4.22 0.00 0.00 0.00 GTFP Indusval 5.00 0.00 0.00 0.00 5.00 0.00 0.00 0.00 1997 Guilman-Amorim 18.08 0.00 0.00 14.37 18.08 0.00 0.00 14.37 1998 Icatu Equity 0.00 5.46 0.00 0.00 0.00 4.16 0.00 0.00 1999 Innova SA 0.00 5.00 0.00 0.00 0.00 5.00 0.00 0.00 1980 Ipiranga 0.00 2.87 0.00 0.00 0.00 2.87 0.00 0.00 1987 Ipiranga 0.00 0.54 0.00 0.00 0.00 0.54 0.00 0.00 2006 Ipiranga 50.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2006 Itambe 15.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2000 Itau-BBA 12.86 0.00 0.00 0.00 12.86 0.00 0.00 0.00 2002 Itau-BBA 70.61 0.00 0.00 0.00 38.47 0.00 0.00 0.00 1999 JOSAPAR 7.57 0.00 7.00 0.00 2.57 0.00 7.00 0.00 2005 Lojas Americana 35.00 0.00 0.00 0.00 35.00 0.00 0.00 0.00 1992 MBR 0.00 0.00 10.00 0.00 0.00 0.00 10.00 0.00 2006 MRS 50.00 0.00 0.00 50.00 0.00 0.00 0.00 0.00

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Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2002 Microinvest 0.00 1.25 0.00 0.00 0.00 0.82 0.00 0.00 Net Servicos 0.00 10.93 0.00 0.00 0.00 10.93 0.00 0.00 2002 Net Servicos 0.00 1.60 0.00 0.00 0.00 1.60 0.00 0.00 2005 Net Servicos 0.00 5.08 0.00 0.00 0.00 5.08 0.00 0.00 1994 Para Pigmentos 2.15 0.00 9.00 0.00 2.15 0.00 9.00 0.00 1994 Portobello 0.00 0.59 0.00 0.00 0.00 0.59 0.00 0.00 2000 Portobello 4.28 0.00 7.00 0.00 4.28 0.00 7.00 0.00 2002 Portobello 0.00 0.90 0.00 0.00 0.00 0.90 0.00 0.00 2000 Puras 0.00 0.00 1.00 0.00 0.00 0.00 1.00 0.00 2003 Queiroz Galvao 26.67 0.00 10.00 0.00 26.67 0.00 10.00 0.00 2004 Queiroz Galvao 0.60 0.00 0.00 0.00 0.08 0.00 0.00 0.00 2006 RBSec 22.83 1.51 0.00 0.00 0.00 1.51 0.00 0.00 Randon Impl Part 2.33 0.00 3.00 0.00 2.33 0.00 3.00 0.00 1997 Sadia 2.55 0.00 2.33 3.28 2.55 0.00 2.33 3.28 1997 Samarco 3.60 0.00 0.00 0.00 3.60 0.00 0.00 0.00 1998 Saraiva 0.00 1.24 0.00 0.00 0.00 1.24 0.00 0.00 2000 Sepetiba 26.24 0.00 5.00 0.00 11.24 0.00 5.00 0.00 2002 Suape ICT 6.00 0.00 0.00 0.00 6.00 0.00 0.00 0.00 1999 Sudamerica 0.00 7.35 0.00 0.00 0.00 7.35 0.00 0.00 2006 Suzano petroq 50.00 0.00 10.00 140.00 39.50 0.00 10.00 110.50 2001 Synteko 11.57 0.00 0.00 0.00 11.57 0.00 0.00 0.00 2006 TAM 50.00 0.00 0.00 0.00 17.00 0.00 0.00 0.00 1998 Tecon Rio Grande 3.55 0.00 5.50 3.71 3.55 0.00 5.50 3.71 2004 Tecon Rio Grande 7.87 0.00 0.00 7.76 7.59 0.00 0.00 7.48 2001 Tecon Salvador 2.95 1.00 0.00 3.10 2.95 0.77 0.00 3.10 2003 Tecon Salvador 0.00 0.55 0.00 0.00 0.00 0.55 0.00 0.00 2004 TriBanco 10.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 2006 TriBanco 0.35 0.00 0.00 0.00 0.35 0.00 0.00 0.00 2002 UP Offshore 9.01 9.51 0.00 23.29 0.00 2.51 0.00 0.00 2002 Unibanco 16.89 0.00 0.00 0.00 16.89 0.00 0.00 0.00 Total portfolio: 1,164.15 253.88 144.84 503.45 703.91 223.86 141.54 400.38

Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic. 2000 BBA 0.01 0.00 0.00 0.00 1999 Cibrasec 0.00 0.00 0.00 0.00 2006 Ipiranga II 0.00 0.00 0.00 0.10 2002 Banco Itau-BBA 0.00 0.00 0.00 0.10 Total pending commitment: 0.01 0.00 0.00 0.20

120

Annex 14: Country at a Glance BRAZIL: FEDERAL DISTRICT MULTISECTOR PUBLIC MANAGEMENT PROJECT

Brazil at a glance 9/24/08

Latin Upper- POVERTY and SOCIAL America middle- Development diamond* Brazil & Carib. income 2007 Population, mid-year (millions) 191.6 563 823 Life expectancy GNI per capita (Atlas method, US$) 5,910 5,540 6,987 GNI (Atlas method, US$ billions) 1,133.0 3,118 5,750 Average annual growth, 2001-07 Population (%) 1.3 1.3 0.7 GNI Gross Labor force (%) 1.8 2.1 1.3 per primary Most recent estimate (latest year available, 2001-07) capita enrollment Poverty (% of population below national poverty line) 22 .. .. Urban population (% of total population) 85 78 75 Life expectancy at birth (years) 72 73 71 Infant mortality (per 1,000 live births) 19 22 22 Child malnutrition (% of children under 5) 45.. Access to improved water source Access to an improved water source (% of population) 91 91 95 Literacy (% of population age 15+) 89 90 93 Gross primary enrollment (% of school-age population) 137 118 111 Brazil Male 141 120 112 Upper-middle-income group Female 133 116 109

KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1987 1997 2006 2007 Economic ratios* GDP (US$ billions) 294.1 871.2 1,067.8 1,314.2 Gross capital formation/GDP 22.3 17.4 16.8 22.1 Trade Exports of goods and services/GDP 9.5 6.8 14.7 12.9 Gross domestic savings/GDP 25.6 15.2 19.7 24.3 Gross national savings/GDP 21.8 13.6 17.3 22.2 Current account balance/GDP -0.5 -3.5 1.3 0.4 Domestic Capital Interest payments/GDP 2.1 1.2 1.2 .. savings formation Total debt/GDP 40.8 22.8 18.2 .. Total debt service/exports 41.7 62.5 38.0 .. Present value of debt/GDP .. .. 20.7 .. Present value of debt/exports .. .. 135.2 .. Indebtedness 1987-97 1997-07 2006 2007 2007-11 (average annual growth) GDP 1.9 2.8 3.7 5.4 4.5 Brazil GDP per capita 0.3 1.3 2.4 4.2 3.7 Upper-middle-income group Exports of goods and services 5.7 9.3 4.6 3.5 3.2

STRUCTURE of the ECONOMY 1987 1997 2006 2007 Growth of capital and GDP (%) (% of GDP) 60 Agriculture 10.0 5.4 5.1 4.9 Industry 45.9 26.1 30.9 30.6 40 Manufacturing 32.0 16.7 18.4 17.5 20

Services 44.1 68.5 64.0 64.5 0 02 03 04 05 06 07 Household final consumption expenditure 62.3 64.9 60.4 47.7 -20 General gov't final consumption expenditure 12.2 19.9 19.9 28.0 GCF GDP Imports of goods and services 6.2 9.0 11.7 10.7

1987-97 1997-07 2006 2007 Growth of exports and imports (%) (average annual growth) Agriculture 2.1 4.2 4.1 1.5 20 Industry 0.9 2.3 2.7 5.5 10 Manufacturing 3.2 2.4 1.6 5.5 Services 3.1 3.7 4.1 6.7 0 02 03 04 05 06 07 -10 Household final consumption expenditure 3.6 1.9 4.7 -2.9 General gov't final consumption expenditure 0.8 2.5 3.6 2.2 -20 Gross capital formation 1.8 2.1 8.7 40.7 Exports Imports Imports of goods and services 14.0 2.7 18.1 13.2

Note: 2007 data are preliminary estimates. This table was produced from the Development Economics LDB database. * The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete.

121

Brazil

PRICES and GOVERNMENT FINANCE 1987 1997 2006 2007 Inflation (%) Domestic prices (% change) 20 Consumer prices 228.3 5.2 6.9 5.1 15 Implicit GDP deflator 204.1 7.7 4.3 4.5 10 Government finance 5 (% of GDP, includes current grants) 0 Current revenue 10.4 17.1 .. 36.5 02 03 04 05 06 07 Current budget balance -1.4 0.1 .. -3.2 GDP deflator CPI Overall surplus/deficit -2.8 2.4 .. -2.8

TRADE 1987 1997 2006 2007 Export and import levels (US$ mill.) (US$ millions) Total exports (fob) 26,225 43,674 127,305 148,324 200,000 Iron ore, manganese 1,718 2,846 .. 11,629 Soybeans 2,325 2,452 .. 8,030 150,000 Manufactures 14,331 29,199 79,904 75,323 Total imports (cif) 15,053 59,747 96,835 107,941 100,000

Food 500 2,463 .. 2,055 50,000 Fuel and energy 4,674 5,597 .. 16,345 Capital goods 3,958 16,098 49,003 28,179 0 01 02 03 04 05 06 07 Export price index (2000=100) 82 113 106 110 Import price index (2000=100) 42 113 89 91 Exports Imports Terms of trade (2000=100) 193 100 120 121

BALANCE of PAYMENTS 1987 1997 2006 2007 Current account balance to GDP (%) (US$ millions) Exports of goods and services 28,073 59,870 156,908 168,002 4 Imports of goods and services 17,749 77,269 120,243 139,394 Resource balance 10,324 -17,399 36,665 28,608 2

Net income -11,699 -14,876 -27,489 -23,812 0 Net current transfers -43 1,823 4,307 -135 01 02 03 04 05 06 07 -2 Current account balance -1,418 -30,452 13,621 4,661 -4 Financing items (net) 3,583 22,201 18,419 78,199 Changes in net reserves -2,165 8,251 -32,040 -82,860 -6 Memo: Reserves including gold (US$ millions) 7,458 52,173 85,839 169,445 Conversion rate (DEC, local/US$) 1.43E-8 1.1 2.2 1.9

EXTERNAL DEBT and RESOURCE FLOWS 1987 1997 2006 2007 Composition of 2006 debt (US$ mill.) (US$ millions) Total debt outstanding and disbursed 119,842 198,457 194,150 .. IBRD 9,384 5,743 9,694 9,676 A: 9,694 G: 20,325 IDA 0 0 0 0 D: 12,048 Total debt service 11,957 41,243 62,145 .. E: 3,562 IBRD 1,555 1,428 1,174 1,353 IDA 0 0 0 0 Composition of net resource flows Official grants 35 83 93 .. Official creditors 36 -1,186 -401 .. Private creditors -705 16,415 6,197 .. Foreign direct investment (net inflows) 1,169 19,650 18,782 .. Portfolio equity (net inflows) 61 5,099 7,716 .. F: World Bank program 148,521 Commitments 1,394 1,104 1,557 1,365 A - IBRD E - Bilateral Disbursements 915 1,416 2,203 606 B - IDA D - Other multilateral F - Private Principal repayments 867 1,049 743 805 C - IMF G - Short-term Net flows 48 368 1,460 -199 Interest payments 688 380 432 548 Net transfers -641 -12 1,028 -747

Note: This table was produced from the Development Economics LDB database. 9/24/08

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MINISTÉRIO DA S. BARBARA SÃO SEBASTIÃO EXÉRCITO ENGENHO GAMÁ MARINHA SANTA MARIA CAVA DE BAIXO DAS LAJES GAMÁ MINISTÉRIO RIACHO PONTE ALTA DA MARINHA AGUA QUENTE FRIO LAMARÃO This map was produced by the Map Design Unit of The World Bank. DE BAIXO The boundaries, colors, denominations and any other information shown S. MARIA SAIA VELHA MANGA on this map do not imply, on the part of The World Bank Group, any MINAS judgment on the legal status of any territory, or any endorsement or To Anápolis To Luziânia To Unaí acceptance of such boundaries. GOIÁS GERAIS MARCH 2009